A mortgage is an amortising loan stretched over decades, and that length is what makes small differences enormous. A quarter-point on the rate is a rounding error on a car loan and tens of thousands of dollars on a thirty-year mortgage. The monthly payment is only half the story; the total repaid is the other half, and lenders rarely lead with it.
The payment your calculator produces is principal and interest only. The figure that actually leaves your account each month usually also includes property tax, buildings insurance, and — where the deposit is below twenty percent — mortgage insurance.
What sits inside a monthly payment
- Principal: the portion reducing what you owe.
- Interest: the lender's charge on the outstanding balance.
- Property tax: often collected monthly into an escrow account and paid annually on your behalf.
- Homeowners insurance: typically escrowed alongside the tax.
- Mortgage insurance (PMI): commonly required below a 20% deposit, and removable once you cross that equity threshold.
- HOA or service charges: not part of the mortgage, but part of the monthly cost of owning.
Rate and term on a $300,000 mortgage
| Scenario | Monthly (P&I) | Total interest |
|---|---|---|
| 30 years at 6.0% | $1,799 | $347,515 |
| 30 years at 6.5% | $1,896 | $382,633 |
| 30 years at 7.0% | $1,996 | $418,527 |
| 15 years at 6.0% | $2,532 | $155,683 |
| 15 years at 6.5% | $2,613 | $170,406 |
The fifteen-year question
A fifteen-year term costs about 40% more each month and saves roughly 55% of the total interest. Whether that is the right trade depends less on the arithmetic than on flexibility: the thirty-year loan with voluntary overpayments gets you most of the saving while leaving you the option to stop overpaying if circumstances change. The fifteen-year commitment is only better if the enforced discipline is what you need.
Affordability rules of thumb
- The 28/36 guideline: housing costs under 28% of gross income, all debt payments under 36%.
- Closing costs typically add 2–5% of the purchase price, payable up front and separately from the deposit.
- Budget around 1% of the property value annually for maintenance — the cost that surprises first-time buyers most.
- Getting pre-approved rather than pre-qualified tells you what a lender will actually advance.