Your Mortgage Payment Deconstructed: Where Your Money Really Goes

Each Piece Explained

Your monthly payment has four parts — PITI. Principal is the only piece that builds equity. On a $300,000 mortgage at 6.5%, month one puts just $271 toward principal out of a $1,896 payment. That's 14%. Interest takes the rest — $1,625 goes straight to the lender. Taxes get escrowed monthly; a $300K house in a 1.5% tax county runs about $375/month. Insurance — homeowners or landlord policy — adds another $100–150/month. Neither taxes nor insurance build equity. They're costs of ownership.

P and I stay fixed for the life of the loan. T and I don't — they go up every year. For investors running DSCR loans, the lender uses P&I in the coverage ratio, not full PITI. But your actual cash flow out the door includes all four. When you're underwriting a deal, use the full payment.

Amortization: Year 1 vs Year 15

On that $300K mortgage at 6.5%, month one is $271 principal and $1,625 interest. Month 180 — year 15 — flips to $1,089 principal and $807 interest. The crossover happens around year 12. Until then, you're mostly paying the bank. If you plan to refinance or sell in year 5, you've barely touched principal. Your equity growth comes mostly from appreciation, not from paying down the loan. That's why DSCR lenders care about the full P&I — they want your NOI to cover that $1,896 with room to spare.

Rate vs. APR

You see 6.5% on the rate sheet and think that's your cost. It's not. APR — annual percentage rate — folds in origination fees, points, and other closing costs. A 6.5% rate with zero points might carry an APR of 6.58%. A 6.25% rate with 2 points might hit 6.72%. The lower rate isn't the better deal — you're paying $6,000 upfront to buy it down. Over 30 years, that might pencil out. Over 5 years? Probably not. For FHA loan borrowers, APR includes the upfront mortgage insurance premium, which can add half a point. Always compare APR — the rate is the headline, APR is the real cost.

The Wild Cards

Property taxes go up. Reassessments happen. A $4,500/year bill today might be $5,200 in three years. Insurance follows the same pattern — climate risk, claims history, inflation. A $1,200 policy can become $1,500. That's $250 more per year. Your escrow adjusts, and your "fixed" payment isn't really fixed. For investors, this matters for cash flow projections. In markets like Florida, Texas, and coastal California, insurance can swing $400+ in a single year. Build conservative tax and insurance estimates into every deal.

One more thing: if you're comparing an FHA loan to conventional, the FHA payment includes mortgage insurance for the life of the loan when you put less than 10% down. Run the numbers — sometimes conventional at a higher rate beats FHA with MI.

Resources Mentioned

• Financing Your Investment Property — the complete guide to loan types, qualification, and strategy
• Deal Analysis Guide — the metrics framework behind NOI, DSCR, and cash flow analysis
• DSCR Loans Explained — how DSCR loans work, who qualifies, and current rate ranges
• Rental Property Calculator — run your own PITI breakdown and cash flow projections with real numbers
• Freddie Mac Mortgage Rate Survey — weekly 30-year and 15-year fixed rate averages