Principal and interest
P&IUpdated
What is principal and interest?
Principal and interest is the portion of your mortgage payment that repays the loan itself. It excludes property taxes, homeowners insurance, mortgage insurance, and HOA dues.
How it is calculated
P&I = loan amount × [ r(1 + r)^n ] ÷ [ (1 + r)^n − 1 ], where r is the monthly rate and n is the number of payments
Principal and interest questions
- What does P&I mean?
- P&I means principal and interest, the two parts of a mortgage payment that go to the lender for the loan itself. Principal reduces the balance you owe; interest is the charge for borrowing whatever is still outstanding.
- What is a P&I payment?
- It is the fixed monthly amount that repays your mortgage, covering principal and interest and nothing else. It is not your full housing payment: property taxes, homeowners insurance, any mortgage insurance and HOA dues sit outside it and are usually collected alongside it.
- How is a P&I payment calculated?
- From three figures and no others: the loan amount, the monthly interest rate, and the number of payments in the term. The amortization formula solves for the single fixed payment that retires the balance exactly at the end, which is why stretching the term lowers the payment without lowering the cost.
- Does the P&I payment change over time?
- On a fixed-rate mortgage it does not. The same amount is due every month for the whole term. What changes is where the money goes: mostly interest at the start, mostly principal near the end. On an adjustable-rate mortgage the payment is recalculated each time the rate resets.
What it means in practice
On a fixed-rate mortgage the P&I payment never changes, but its composition does. Early payments are mostly interest; later payments are mostly principal.
The lender doesn't choose the split. Interest is charged on what you still owe, so in the first month, when the balance is at its largest, the interest charge is at its largest too, and whatever the fixed payment leaves over goes to principal. As the balance falls the interest charge falls with it and the principal share grows, imperceptibly at first and then steeply near the end of the term.
Comparing loans on P&I alone hides real money. Taxes, insurance and mortgage insurance can add several hundred dollars a month and vary enormously by location.
Two loans can also carry the same P&I for quite different reasons. A longer term lowers the payment by spreading the principal over more months, not by making the loan cheaper: the same monthly figure buys less repayment over thirty years than over twenty, and the difference is interest.
Every result in this calculator shows the all-in monthly cost alongside P&I for exactly that reason.