How Mortgage Payments Work
A mortgage payment has four components, often called PITI: Principal (the loan balance you pay down), Interest (the cost of borrowing), Taxes (property taxes), and Insurance (homeowner's insurance). In the early years of a mortgage, most of your payment goes toward interest. Over time, the principal portion increases — this is called amortization.
Monthly P&I Formula: M = P × [r(1+r)ⁿ] / [(1+r)ⁿ – 1] where P = principal, r = monthly rate, n = total payments.
Loan Types Explained
Personal Loans are unsecured and typically carry higher interest rates (6–36%). Auto Loans are secured by the vehicle (3–12%). Student Loans often have the lowest rates and may offer income-driven repayment. Business Loans vary widely depending on the lender and collateral.
Extra Payments Save Money
Even small extra monthly payments can dramatically reduce your total interest and loan term. For example, on a $280,000 mortgage at 6.5% over 30 years, an extra $200/month would save over $100,000 in interest and cut 8 years off your loan. Use the loan calculator's extra payment feature to see the impact for your situation.