A mortgage payment typically consists of four components known as PITI: principal, interest, property taxes, and insurance. The principal is the portion that reduces your loan balance, while interest is the cost of borrowing money from your lender. Property taxes and homeowners insurance are often escrowed into your monthly payment for convenience.

The monthly principal and interest payment is calculated using the standard amortization formula: M = P[r(1+r)^n] / [(1+r)^n - 1], where P is the loan amount, r is the monthly interest rate, and n is the total number of payments. A 30-year fixed mortgage at 6.5% on a $320,000 loan results in a monthly P&I payment of approximately $2,023.

Your down payment directly affects your loan amount and monthly cost. Putting down at least 20% eliminates the need for private mortgage insurance (PMI), which can save you $100 to $300 per month. Shorter loan terms like 15 years come with higher monthly payments but significantly lower total interest paid over the life of the loan.