Mortgage FAQ: 18 Questions Answered

We've been running this calculator long enough now to notice that the same questions come back month after month — different wording, same underlying confusion. PMI. Escrow. Points. Why month one of a 30-year mortgage feels like throwing money into a furnace. The mechanics of all of it.

So we collected the eighteen questions that come up most, and tried to answer them the way we'd answer a friend over coffee — with actual numbers, not just definitions. Where the answer depends on which country you're in, we say so. Where the conventional advice is wrong, we say that too.

If you want to see how any of these answers play out on your specific loan, plug your numbers into the calculator. The point of all this is to make the math visible, not to memorize trivia about ratios.

How is my monthly mortgage payment calculated?

Lenders use the standard amortization formula: M = P × [r(1+r)^n] / [(1+r)^n − 1], where P is the principal, r is the monthly interest rate (annual rate divided by 12), and n is the total number of monthly payments. On a $400,000 loan at 7.2% over 30 years, that gives you $2,715 per month in principal and interest. Add property taxes, homeowners insurance, and PMI if you have it, and you get your full PITI. The formula itself isn't complicated — what most calculators get wrong is the country-specific layer on top (PMI auto-cancellation in the US, assurance emprunteur in France, stamp duty in the UK). Our calculator handles all three.

What is PITI?

PITI stands for Principal, Interest, Taxes, and Insurance — the four components of a typical monthly mortgage payment. Principal and interest pay down the loan itself; taxes (property tax) and insurance (homeowners and PMI when applicable) sit in an escrow account that the lender taps to pay those bills for you. Most people overestimate the principal-and-interest portion and forget the rest. On a typical $400,000 home with 1.1% property taxes and standard insurance, the T and the I together can easily add $500–700 to your monthly payment — about 20% on top of the headline number. Always budget in PITI, never just P+I.

What is PMI and when do I need it?

PMI (Private Mortgage Insurance) is required on conventional loans when your down payment is less than 20%. It protects the lender if you default — not you. Costs typically run 0.5% to 1.5% of the loan annually, so on a $360,000 loan with average 0.85% PMI, you're looking at roughly $255 per month tacked onto your bill. PMI cancels automatically at 78% LTV under the Homeowners Protection Act of 1998, and you can request cancellation at 80% LTV (often requiring a fresh appraisal). Our take: PMI is rarely worth waiting years to avoid — putting down 20% just to skip it usually isn't a smart use of cash if you'd otherwise have to delay buying by two or three years. See our PMI guide for the full breakdown.

What credit score do I need to get a mortgage?

Conventional loans usually require a 620 minimum, but the best rates kick in at 740+. FHA loans accept 580 with 3.5% down, or 500 with 10% down. VA and USDA loans have no official floor but most lenders want 620+. The difference between a 680 score and a 760 score on a $400,000, 30-year loan can be roughly 0.5% in rate — that's about $130/month, or $47,000 over the life of the loan. Pull your free annual reports at AnnualCreditReport.com (it's the only federally authorized source — others charge for the same data) and dispute any errors at least 60 days before applying.

How much down payment do I need?

Conventional loans accept as little as 3% (Fannie Mae HomeReady, Freddie Mac Home Possible). FHA requires 3.5%. VA and USDA allow 0% for eligible borrowers. The 20% threshold matters because it removes PMI — but it's not the magic number people think it is. We've watched plenty of buyers wait three extra years to scrape together 20%, only to find prices climbed faster than they saved. Sometimes 5% down today beats 20% down in 2029. Run both scenarios in the affordability calculator before you commit to a savings timeline.

What is the difference between pre-qualification and pre-approval?

Pre-qualification is a back-of-envelope estimate based on what you tell the lender. No documents, no credit pull, takes ten minutes online. Pre-approval is the real thing: the lender pulls your credit, verifies income with pay stubs and two years of tax returns, and issues a conditional commitment letter good for 60–90 days. In a tight market, sellers won't even read offers backed only by pre-qualification letters. Pre-approval is the minimum viable proof that you can actually close.

How long does the mortgage approval process take?

From application to closing, expect 30 to 45 days. Pre-approval itself takes 1 to 7 days, mostly depending on how fast you can pull together documents. The slowest steps are underwriting (the lender re-verifying everything) and the appraisal — which has to be scheduled, performed, and then reviewed. To shave a week or two, have these ready before you apply: two years of tax returns, two months of bank statements, 30 days of pay stubs, and a list of every account number and balance you'd otherwise have to dig up later.

Should I choose a 15-year or 30-year mortgage?

A 15-year mortgage has higher monthly payments but a lower interest rate (typically 0.5% below the 30-year), and pays off the loan in half the time. A 30-year has lower payments and far more cash flow flexibility, but costs much more in total interest. On a $350,000 loan, the 15-year saves around $180,000 in interest versus the 30-year. Our honest take: most people who say they'll "take the 30-year and invest the difference" never actually invest the difference. If discipline is uncertain, the 15-year is the better default. If retirement contributions or emergency savings would suffer, take the 30-year. See the full 15 vs 30 year comparison with worked numbers.

What is an amortization schedule?

It's the month-by-month table showing how each payment splits between principal and interest, and what's left on your balance after each payment. The shock for most first-time buyers: month one of a 30-year loan is mostly interest. On a $300,000 loan at 7%, your first payment of $1,996 sends $1,750 to interest and only $246 to principal. The crossover — where principal finally exceeds interest in a single payment — doesn't happen until around year 18 on a typical 30-year. Our amortization guide walks through how to read one and where the leverage points are.

Can I pay off my mortgage early?

Yes, on virtually every modern US mortgage you can make extra principal payments at any time, no penalty. A few older loans (mostly pre-2014) have prepayment penalties — read your note. The math is brutal in your favor: one extra payment per year on a 30-year, $400,000 loan at 7% knocks roughly 4 years off the term and saves around $93,000 in interest. Bi-weekly payments (half your monthly amount every two weeks) work out to 13 full payments per year instead of 12, which produces a similar effect. Don't pay a third party to set this up — your lender will accept extra principal directly, and "biweekly enrollment" services exist mostly to skim a fee.

What is escrow and why do I have an escrow account?

Escrow is a separate account your lender uses to collect property taxes and homeowners insurance from your monthly payment, then pay those bills on your behalf when they come due. It's required if your down payment is below 20%, because the lender doesn't want to discover six months in that you skipped a tax bill and the county is now in line ahead of them. Each year the lender does an "escrow analysis" and adjusts your monthly contribution — if taxes went up, your payment goes up. Watch out for shortage notices in years when your assessor reassesses; an extra $1,200 in property tax becomes $100/month plus a one-time catch-up.

What are mortgage points?

Discount points are upfront fees that buy down your interest rate. One point equals 1% of the loan amount and typically drops the rate by about 0.25%. The math is a break-even calculation: if 1 point costs $4,000 and saves you $60/month, you break even in 67 months. Stay longer than that and you win; sell or refinance before then and you lost. Origination points are different — they're just a lender fee dressed up in similar terminology. Always ask a lender to explicitly distinguish between discount and origination when reading a Loan Estimate.

When should I refinance?

The traditional rule of thumb is "refinance when rates drop 0.75% below your current rate." That rule is incomplete. The actual question: will the monthly savings recover the closing costs (2–5% of the loan) before you sell or move? On a $400,000 loan, closing costs of $8,000 and savings of $200/month means a 40-month break-even. If you're moving in three years, refinancing burns money. Cash-out refinances follow different math — you're effectively borrowing more at mortgage rates, which is usually cheaper than a HELOC or personal loan but uses your home as collateral.

What is a debt-to-income ratio and why does it matter?

DTI is your total monthly debt payments — including the new mortgage, plus credit cards, car loans, student loans — divided by your gross monthly income. Conventional loans cap it at 43%; FHA can stretch to 50% with compensating factors. Lower DTI gets you better rates and more loan options. The fastest way to lower DTI before applying isn't to pay down balances (which barely moves the minimum payment); it's to pay off a low-balance car loan or student loan entirely, which removes the entire monthly payment from the calculation.

What closing costs should I expect?

Closing costs typically run 2–5% of the loan amount, so on a $400,000 mortgage that's $8,000 to $20,000. The bucket includes lender fees (origination, underwriting, application), third-party fees (appraisal, title insurance, attorney, survey), prepaid items (first year of homeowners insurance, several months of property tax escrow), and government fees (recording, transfer tax). You'll get a Loan Estimate within 3 days of applying — that's your itemized prediction. Three days before closing, you'll get a Closing Disclosure showing the actual numbers. If anything moved more than $100 between the two without a documented reason, push back. Title insurance and lender fees are negotiable; recording and transfer taxes aren't.

What is the difference between a fixed-rate and adjustable-rate mortgage (ARM)?

Fixed-rate: same interest rate for the full term. Predictable, simpler, the default choice for the vast majority of US buyers. ARM: a fixed introductory rate (5, 7, or 10 years is most common) that then adjusts annually based on a market index plus a margin. ARMs typically start 0.5%–1% below 30-year fixed, which sounds attractive — until your 5/1 ARM resets in year six and your payment jumps $400. Take an ARM only if you're certain you'll sell or refinance before the adjustment period. Most "I'll definitely move in five years" plans don't survive contact with reality.

Can I get a mortgage as a self-employed person?

Yes, but expect a paperwork avalanche. Lenders typically want two years of tax returns showing consistent self-employment income, plus current-year profit-and-loss statements. They'll average your net income (after deductions) over the two years — which is the trap. Aggressive deductions that minimize your taxable income for IRS purposes also minimize your borrowing power. If you're planning to buy in the next two years and you're self-employed, talk to a mortgage broker before you file your next return. Bank-statement loans exist for borrowers whose tax returns understate real cash flow, but they come with rates roughly 1–2% above conventional.

How is the mortgage process different in the UK and France?

The UK is built around fixed-rate periods (2, 3, or 5 years) sitting on top of a 25-year typical term. When the fixed period ends, you drop onto the lender's Standard Variable Rate, which is brutal — most UK borrowers remortgage every few years to keep escaping the SVR. France works differently again: rates are capped by the legal "taux d'usure" (usury rate) recalculated quarterly, mandatory assurance emprunteur adds 0.2–0.5% to the effective cost, and the 33–35% income cap on monthly payment is enforced strictly by every bank — if you exceed it, you're denied, no negotiation. Our calculator handles all three jurisdictions out of the box.

Still have questions?

Plug your numbers into the calculator first — most "should I do X?" questions become obvious once you can see the actual dollar impact. For anything not covered here, drop us a message. We read every one.