How is a Mortgage Payment Calculated?
Your monthly mortgage payment is calculated using this formula:
M = P × [r(1+r)^n] / [(1+r)^n − 1]
Where: P = loan amount (principal), r = monthly interest rate (annual rate ÷ 12), n = total number of payments (years × 12).
For example, a 40,000 loan at 6.5% for 30 years: monthly rate = 6.5%/12 = 0.5417%, n = 360 payments, monthly payment = ,517.
What is an Amortization Schedule?
An amortization schedule shows every monthly payment over the life of your loan — broken down into how much goes to principal (reducing your balance) and how much goes to interest. Early in the loan, most of your payment is interest. As the balance reduces, more goes to principal.
How Extra Payments Save Money
Making extra payments directly reduces your principal balance, which means less interest accumulates each month. Even a small extra payment of 00/month on a 30-year 00,000 mortgage at 6.5% can save over 0,000 in interest and cut 4+ years off the loan term.
Frequently Asked Questions
What is not included in this mortgage payment? +
This calculator shows principal and interest only. Your actual monthly payment to your lender may also include property taxes, homeowner's insurance and private mortgage insurance (PMI) if your down payment is less than 20%. These are often collected in an escrow account.
What is PMI and when do I need it? +
PMI (Private Mortgage Insurance) is required by most lenders when your down payment is less than 20% of the home price. It typically costs 0.5%–1.5% of the loan amount per year. Once your equity reaches 20%, you can usually request PMI removal.
Should I choose a 15-year or 30-year mortgage? +
A 15-year mortgage has higher monthly payments but dramatically less total interest — often half as much. A 30-year mortgage has lower monthly payments, giving you more cash flow flexibility. Use this calculator to compare both options by changing the loan term.
How much house can I afford? +
A common rule is that your monthly mortgage payment should not exceed 28% of your gross monthly income. Your total debt payments (mortgage + all other debts) should not exceed 36%. Use this calculator to find what payment different home prices produce, then compare to your income.
