How to Calculate Your Mortgage Payment (With Examples)
Learn the mortgage payment formula, work through an example step by step, see how rate, term and extra payments change it, and check it with a free calculator.
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Free tool: Mortgage CalculatorYour monthly mortgage payment depends on three numbers: how much you borrow, the interest rate and how many years you take to repay. This guide shows the formula lenders use, works through an example by hand, and explains how the rate, the term and extra payments change what you pay. You can check every number with the free Mortgage Calculator.
The mortgage payment formula
For a fixed-rate mortgage, the monthly principal and interest payment is:
M = P × r × (1 + r)ⁿ ÷ ((1 + r)ⁿ − 1)
where:
- M is the monthly payment
- P is the loan amount (the home price minus your down payment)
- r is the monthly interest rate: the annual rate ÷ 12
- n is the number of monthly payments: the term in years × 12
The formula produces a level payment: the same amount every month, set so that the loan is fully repaid with the last payment.
Worked example
Say you buy a $400,000 home with 20% down, so you borrow $320,000 at 6.5% for 30 years.
- Monthly rate: r = 0.065 ÷ 12 = 0.0054167
- Number of payments: n = 30 × 12 = 360
- Growth factor: (1 + r)ⁿ = 1.0054167³⁶⁰ ≈ 6.9918
- Payment: M = 320,000 × 0.0054167 × 6.9918 ÷ (6.9918 − 1) ≈ $2,022.62 a month
Over 30 years you'd pay 360 × $2,022.62, about $728,142 in total. Of that, $408,142 is interest, more than the amount you borrowed.
Where each payment goes
Every payment first covers the interest owed for that month, and the rest pays down the loan. In the first month, the interest is $320,000 × 0.0054167 = $1,733.33, so only about $289 reduces the balance. As the balance falls, so does the interest, and more of each payment goes to the loan:
| Year | Interest paid | Principal paid | Balance at year end |
|---|---|---|---|
| 1 | $20,695 | $3,577 | $316,423 |
| 5 | $19,636 | $4,636 | $299,555 |
| 10 | $17,861 | $6,410 | $271,284 |
| 20 | $12,014 | $12,257 | $178,129 |
| 30 | $833 | $23,438 | $0 |
In this example, a payment doesn't put more toward the loan than toward interest until year 20, and after 10 years you've repaid only about 15% of the loan. This schedule is called amortization, and you can see it for any loan with the Amortization Schedule.
How the rate and the term change the payment
Small changes in the rate make a big difference over 30 years. On the same $320,000 loan:
| Rate | Term | Monthly payment | Total interest |
|---|---|---|---|
| 5.5% | 30 years | $1,816.92 | $334,093 |
| 6.5% | 30 years | $2,022.62 | $408,142 |
| 7.5% | 30 years | $2,237.49 | $485,495 |
| 6.5% | 15 years | $2,787.54 | $181,758 |
Each percentage point adds roughly $210 a month and about $75,000 in interest. A 15-year term raises the payment by about $765 a month, but cuts the total interest by more than half. Lenders usually offer lower rates on 15-year loans too, which saves even more.
How extra payments help
Anything you pay above the required payment goes straight to the loan balance, so it stops interest from building on that money. Adding $200 a month to the 6.5% example from the first payment:
- pays the loan off in 23 years 5 months instead of 30 years, and
- saves about $105,429 in interest, for $56,200 of extra payments.
Check with your lender that extra payments are applied to the principal and that there's no prepayment penalty. The Mortgage Payoff Calculator and the Biweekly Mortgage Calculator show other ways to pay off a loan early.
What else is in your monthly payment
The formula gives the principal and interest. Your actual monthly housing cost often includes more, sometimes summed up as PITI (principal, interest, taxes and insurance):
- Property taxes, which vary widely by location. Lenders often collect them monthly and pay the bill for you through an escrow account.
- Homeowners insurance, usually also paid through escrow.
- Private mortgage insurance (PMI) if you put down less than 20% on a conventional loan. The PMI Calculator estimates it and shows when it can be removed.
- HOA fees if the home is in a homeowners association.
These can add several hundred dollars a month, so include them when you work out what you can afford. The Home Affordability Calculator takes them into account.
How to use the Mortgage Calculator
- Open the Mortgage Calculator.
- Enter the loan amount, the annual interest rate and the term in years. For the example: 320,000, 6.5 and 30.
- Read the results: the monthly payment, the payoff time and the total interest.
- Try extra payments. Enter an amount in Monthly Extra Payment and the year to start in Extra Payment Start Year. The payoff time and Interest Savings update straight away. Set the extra payment to 0 to see the loan without it.
- Explore the schedule. The charts and the year-by-year table show the balance falling and how each year's payments split between interest and principal.
The calculator works out the principal and interest; add your taxes, insurance and any PMI or HOA fees to get the full monthly cost.
Ways to lower your mortgage payment
- Put more down. A bigger down payment means a smaller loan, and 20% down avoids PMI on a conventional loan. The Down Payment Calculator shows the trade-offs.
- Compare lenders. Quotes can differ by a quarter point or more for the same borrower, which adds up to thousands over the loan.
- Improve your credit score before you apply; the best rates go to the strongest credit.
- Consider discount points, an upfront fee for a lower rate. The Mortgage Points Calculator shows when they pay off.
- Refinance later if rates fall. The Refinance Calculator tells you whether the savings outweigh the costs.
Frequently asked questions
How is a mortgage payment calculated?
With the formula M = P × r × (1 + r)ⁿ ÷ ((1 + r)ⁿ − 1), using the loan amount, the monthly interest rate and the number of payments. A $320,000 loan at 6.5% for 30 years comes to $2,022.62 a month in principal and interest.
Is a 15-year or a 30-year mortgage better?
A 15-year mortgage costs far less in interest but has a much higher payment. A 30-year mortgage keeps the payment affordable, and you can still pay extra when you can. Choose the payment you can comfortably manage alongside your other goals, such as saving for retirement.
Why is my payment higher than the calculator shows?
The calculator covers principal and interest only. If your lender collects property taxes and insurance through escrow, or you pay PMI or HOA fees, your total payment will be higher.