Monthly mortgage principal and interest is calculated using the 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. Your total monthly payment also includes property taxes, homeowners insurance, and possibly PMI.
An amortization schedule is a table showing each monthly payment broken down into principal and interest over the life of the loan. Early payments are mostly interest, while later payments are mostly principal. This schedule helps you understand how your loan balance decreases over time.
Mortgage points (each point equals 1% of the loan amount) buy down your interest rate, typically by 0.25% per point. Points make sense if you plan to keep the loan long enough to recoup the upfront cost through monthly savings. Use the break-even analysis in our calculator to determine if points are worthwhile for your situation.
PITI stands for Principal, Interest, Taxes, and Insurance — the four components of a typical monthly mortgage payment. Principal pays down the loan balance, interest is the cost of borrowing, taxes are property taxes, and insurance includes homeowners insurance and possibly mortgage insurance (PMI or MIP).