How Mortgages Really Work

A mortgage looks like a single monthly payment but is actually four things bundled together, often called PITI: principal, interest, taxes, and insurance. In the early years of a thirty-year fixed loan, the vast majority of every payment goes toward interest, with only a sliver chipping away at principal.

That ratio slowly flips over time. The most consequential number on the loan is the interest rate, where even one percentage point can mean tens of thousands of extra dollars over the life of the loan.

Always shop at least three lenders and ask for a loan estimate from each so you can compare fees apples to apples. A larger down payment lowers monthly costs and lets you avoid private mortgage insurance, but draining your emergency fund to hit twenty percent is usually a mistake. Consider whether a fifteen-year mortgage fits your budget; the rate is lower and you build equity dramatically faster. Refinance only when the rate drop covers closing costs within a couple of years and you plan to stay in the home.