The pieces of the payment
Principal reduces what you owe. Interest is the cost of borrowing for that month. Taxes and insurance are often collected with the payment and held to pay those bills, but they are not part of the loan balance.
Mortgage insurance is a separate charge. Conventional loans often use PMI below 20% equity. FHA, VA, and USDA use their own fees, and those fees are not the same product.
Why the balance falls slowly at first
The scheduled principal-and-interest payment stays level on a fixed-rate loan. Interest each month is the balance times the monthly rate, so a new loan sends more of the payment to interest.
As the balance falls, more of the same payment hits principal. That schedule is the amortization table. Extra principal can shorten it. The rate in our calculators is an example until you replace it.
| Line | What it does |
|---|---|
| Principal | Reduces the balance |
| Interest | Cost of borrowing that month |
| Tax and insurance | Bills held for later, if escrowed |
| PMI or MIP | Insurance on a low-down-payment loan |
Calculators
Related guides
Sources
Common questions
Is the interest rate the same as APR?
No. The note rate is used to calculate principal and interest. APR includes certain finance charges so loans can be compared. See the APR guide.
Does a calculator know my taxes?
No. Enter the tax bill or a local rate. A placeholder is not a quote.