Understanding Escrow
Why your lender holds your tax and insurance money — and how it shows up in your monthly payment as PITI.
Housing math, demystified.
Most calculators hide the truth in small print. We put the hard numbers upfront so you can build a life, not just a mortgage.
$250,000
The total purchase price before taxes and fees. Start with your target market average.
6.85%
%
Reflects current market conditions. A 1% drop can save you hundreds monthly.
20% ($50,000)
20% or more avoids Private Mortgage Insurance (PMI). Your equity also cushions market dips.
Property tax varies wildly by state. Ohio's effective average is 1.56%.
30 years
A 15-year loan saves enormous interest but doubles your monthly payment. 30-year is the U.S. default.
22%
Your marginal federal income tax rate. Mortgage interest and property tax may reduce your taxable income if you itemize.
$120
$
Homeowner's insurance protects the structure. Required by every lender.
$0
$
Homeowner association dues. Common for condos and planned communities. $0 if not applicable.
$450
$
Minimum payments on car loans, student loans, credit cards, and personal loans. Lenders add these to your housing payment to compute back-end DTI.
Investment Property Mode
Toggle on to model this property as a rental — see cashflow, cap rate, and after-tax return.
Compare loan terms
Same price · same rate15-year fixed
$1,781/mo P&I
Lifetime interest: $120,567
Total paid: $320,567
20-year fixed
$1,533/mo P&I
Lifetime interest: $167,834
Total paid: $367,834
30-year fixed (current)
$1,311/mo P&I
Lifetime interest: $271,787
Total paid: $471,787
Shorter terms = bigger payment, dramatically less interest. The 30-year is the U.S. default because the monthly is lowest, not because it's cheapest.
Year-by-year amortization
Show schedule →
How each year of payments splits between interest (to the bank) and principal (your equity). In year one, almost everything is interest.
| Year | Principal paid | Interest paid | Balance remaining |
|---|---|---|---|
| 1 | $2,091 | $13,635 | $197,909 |
| 2 | $2,239 | $13,487 | $195,670 |
| 3 | $2,397 | $13,329 | $193,273 |
| 4 | $2,567 | $13,160 | $190,706 |
| 5 | $2,748 | $12,978 | $187,958 |
| 6 | $2,942 | $12,784 | $185,016 |
| 7 | $3,150 | $12,576 | $181,866 |
| 8 | $3,373 | $12,353 | $178,493 |
| 9 | $3,611 | $12,115 | $174,881 |
| 10 | $3,867 | $11,859 | $171,014 |
| 11 | $4,140 | $11,586 | $166,874 |
| 12 | $4,433 | $11,293 | $162,441 |
| 13 | $4,746 | $10,980 | $157,695 |
| 14 | $5,082 | $10,645 | $152,614 |
| 15 | $5,441 | $10,285 | $147,173 |
| 16 | $5,826 | $9,901 | $141,347 |
| 17 | $6,237 | $9,489 | $135,110 |
| 18 | $6,678 | $9,048 | $128,432 |
| 19 | $7,150 | $8,576 | $121,281 |
| 20 | $7,656 | $8,070 | $113,625 |
| 21 | $8,197 | $7,529 | $105,428 |
| 22 | $8,777 | $6,950 | $96,652 |
| 23 | $9,397 | $6,329 | $87,255 |
| 24 | $10,061 | $5,665 | $77,193 |
| 25 | $10,773 | $4,954 | $66,421 |
| 26 | $11,534 | $4,192 | $54,887 |
| 27 | $12,349 | $3,377 | $42,537 |
| 28 | $13,222 | $2,504 | $29,315 |
| 29 | $14,157 | $1,569 | $15,158 |
| 30 | $15,158 | $568 | $0 |
Loan Amount
$200,000
Year-1 Interest
$13,635
Year-1 Property Tax
$3,900
Potential Tax Savings
$3,858
If itemized at 22%
Lesson 04 — Debt-to-Income
How lenders decide what you can afford.
Debt-to-Income (DTI) is the single most important number in underwriting. It's the percent of your gross monthly income that goes to debt. Lenders compute two versions:
- Front-end DTI (the 28% rule)Housing payment ÷ gross income. Traditional ceiling: 28%.
- Back-end DTI (the 36% rule)(Housing + all other debt) ÷ gross income. Traditional ceiling: 36%. Qualified Mortgage cap: 43%.
Adjust the affordability ratio and other debts above — the numbers on the right update in real time.
Your Numbers
Housing @ 28% front-end$1,756/mo
Other monthly debts$450/mo
Total debt (back-end)$2,206/mo
Gross income needed — front-end (28%)
$75,237/ year
Gross income needed — back-end (36%)
$73,517/ year
Whichever is higher = your real floor
$75,237/ year
That's $6,270 gross per month, or roughly $36/hour full-time.
Reality check
"At 32% of a $65k household income, this home is stretching — manageable, but leaves little room for surprise."
Lenders will often approve you for more than you can comfortably afford. The 28/36 rule says no more than 28% of gross income to housing, and no more than 36% to all debt combined.
Financial Literacy 101
Plain-language lessons
The PMI Trap
Private Mortgage Insurance protects the bank, not you. Here's when it kicks in, how much it costs, and how to drop it.
Amortization Secrets
In year one, ~80% of your payment is pure interest. One extra principal payment a year can shave 4–5 years off your loan.
ARM vs. 30-Year Fixed
Adjustable-rate mortgages start cheaper but reset to market rates after 5, 7, or 10 years. Here's when the gamble pays off.