Mortgage Guide & Analysis
The three numbers that actually drive your loan decision.
1. LTV Ratio — the number lenders check first
Your down payment sets your Loan-to-Value ratio, and LTV sets your rate and your PMI. Stay at or below 80% LTV (20% down) and you skip private mortgage insurance entirely. Above that, PMI pricing is tiered: 0.45% of the loan per year at 85% LTV, 0.70% at 90%, 0.95% at 95%. On a $350,000 loan at 90% LTV, that is about $184 a month of pure insurance cost you can buy down with a bigger down payment.
See your PMI tier with the PMI calculator →2. Fixed vs. Decreasing Amortization
Fixed P&I keeps every payment identical, which makes budgeting simple. The tradeoff: in year one, roughly 86% of each payment is interest. Decreasing amortization pays the same principal every month and lets interest shrink, so total interest drops significantly - but the first payment is the largest you will ever make. Fixed wins for cash-flow planning; decreasing wins for total cost. Most 30-year buyers pick fixed and attack the balance with extra principal later.
3. The Hidden Costs of Ownership
Principal and interest are only half the story. Property taxes run 0.3% to 2.3% of home value a year depending on your county - Texas counties sit near the top at 1.6-2.1% - and homeowners insurance adds $120-$250 a month. A $350,000 home in a 1.6% tax county carries $467 a month in tax alone. Skip these in your math and the house you could afford disappears at closing.
Run the full PITI math on the calculator →Core Formulas, Stated Plainly
Each block stands on its own — definition, formula, and a worked example you can reproduce on any standard amortization calculator.
PITI — the real monthly payment
Definition: PITI is Principal, Interest, Property tax and Insurance. It is the actual amount paid each month on a home, and it is always larger than the principal-and-interest figure advertised in a rate quote.
Formula: P&I = P × r(1+r)n / ((1+r)n − 1), where P is the loan amount, r = annual rate ÷ 12, and n = term in months. Property tax is (home price × annual tax rate) ÷ 12; insurance is a flat monthly figure.
Worked example: a $400,000 home with 20% down leaves a $320,000 loan at 6.71% for 30 years. P&I = $2,067.01. Add property tax at 1.1% ($366.67), homeowners insurance ($120), and PMI ($0 at 80% LTV) →$2,553.68 per month.
Run your own numbers →PMI — private mortgage insurance
Definition: PMI protects the lender, not the borrower, when a conventional loan exceeds 80% loan-to-value. It is charged monthly and disappears at 78% LTV.
Formula: monthly PMI = loan amount × annual PMI rate ÷ 12. The annual rate depends on LTV and credit: roughly 0.30%–1.0% at 80–85% LTV, 0.50%–1.5% at 85–90%, and higher above 90%.
Worked example: the same $400,000 home with 10% down is a $360,000 loan at 90% LTV. At a 0.75% annual PMI rate that is $225 per month($360,000 × 0.0075 ÷ 12), lifting the payment from $2,812.06 to$3,037.06 per month. PMI must be cancelled automatically once the balance reaches 78% of the original value, and can be requested at 80%.
Model your PMI →DTI — the 28/36 rule
Definition: Debt-to-income ratio compares monthly debt payments to gross monthly income. Lenders look at two numbers: front-end DTI (housing only) and back-end DTI (all debt including the mortgage).
Formula: front-end DTI = housing payment ÷ gross monthly income; back-end DTI = (housing + all other monthly debt) ÷ gross monthly income.
Worked example: on a $100,000 gross annual income ($8,333 per month), the 28% front-end limit allows $2,333 per month for housing and the 36% back-end limit allows $3,000 per month for all debt combined. Many conventional loans now accept back-end DTI up to 45–50%, while FHA commonly allows 43–50%.
Check your DTI →Escrow — where the tax and insurance money goes
Definition: An escrow (or impound) account is held by the servicer to collect property tax and homeowners insurance alongside the mortgage payment and pay those bills when they come due.
Formula: monthly escrow = (annual property tax + annual insurance) ÷ 12. Servicers typically also require a cushion of up to two months of escrow payments.
Worked example: property tax of $4,400 per year plus insurance of $1,440 per year is $486.67 per month into escrow. If the county raises the assessment, the servicer recalculates and the monthly payment changes at the next escrow analysis.
See how we model escrow →Amortization — why early payments are mostly interest
Definition: Amortization is the schedule that splits a fixed payment into interest (charged on the remaining balance) and principal (which reduces it). The payment stays constant; the split shifts toward principal over time.
Formula: interest in a month = remaining balance × (annual rate ÷ 12); principal in that month = payment − interest.
Worked example: on the $320,000 loan at 6.71% for 30 years, the payment is $2,067.01. In year one only $3,437 goes to principal while $21,368 goes to interest, leaving a balance of$316,563. Total interest over the full term is$424,124.54.
See what extra principal saves →MIP — FHA mortgage insurance
Definition: MIP is FHA's version of mortgage insurance. It has two parts: an upfront premium financed into the loan, and an annual premium billed monthly.
Formula: upfront MIP = 1.75% of the base loan amount; annual MIP = 0.55% of the loan amount when LTV exceeds 95%, or 0.50% at or below 95%, divided by 12 for the monthly charge.
Worked example: a $300,000 FHA purchase with 3.5% down is a $289,500 base loan. Upfront MIP is $5,066 (1.75%), and at 96.5% LTV the annual rate is 0.55%, so monthly MIP is $132.69($289,500 × 0.0055 ÷ 12). Unlike conventional PMI, FHA MIP usually lasts the life of the loan when the down payment is below 10%.
Run an FHA scenario →