How to Calculate Your Mortgage Payment (With Formula)

Understanding how your mortgage payment is calculated puts you in a stronger position when shopping for a home. Instead of relying solely on a lender's quote, you can run the numbers yourself, spot errors, and evaluate how different rates and terms change what you owe each month. In this guide, we walk through the exact formula banks use, apply it to a real-world example, and break down every component that makes up your true monthly housing cost.

The Mortgage Payment Formula

Every fixed-rate mortgage in the United States uses the same amortization formula to determine the monthly principal and interest payment. Here it is:

M = P [ r(1 + r)ⁿ ] / [ (1 + r)ⁿ − 1 ]

Let's define each variable:

• M — Your monthly mortgage payment (principal and interest only).
• P— The principal, meaning the total loan amount after your down payment. If you buy a $350,000 home and put 20% down ($70,000), your principal is $280,000.
• r— The monthly interest rate. Take your annual rate and divide by 12. A 6.5% annual rate becomes 0.065 / 12 = 0.005417.
• n— The total number of monthly payments over the life of the loan. A 30-year mortgage has 30 × 12 = 360 payments. A 15-year mortgage has 180.

This formula produces the exact dollar amount you owe your lender each month for principal and interest. It does not include taxes, insurance, or PMI — we will cover those separately below. You can verify your own numbers instantly with our Mortgage Calculator, which applies this formula along with taxes and insurance inputs.

Step-by-Step Example: Calculating a Real Payment

Let's work through a concrete scenario so you can see every step of the math. Imagine you are buying a $350,000 home with a 20% down payment at a 6.5% fixed rate on a 30-year term.

Step 1: Determine the Loan Amount (P)

Purchase price: $350,000. Down payment at 20%: $350,000 × 0.20 = $70,000. Loan principal: $350,000 − $70,000 = $280,000.

Step 2: Calculate the Monthly Interest Rate (r)

Annual rate: 6.5% = 0.065. Monthly rate: 0.065 / 12 = 0.005417 (rounded to six decimal places).

Step 3: Determine the Number of Payments (n)

Term: 30 years. Total payments: 30 × 12 = 360.

Step 4: Plug into the Formula

First, calculate (1 + r)ⁿ: (1.005417)³⁶⁰ = approximately 6.9913.

Next, calculate the numerator: r × (1 + r)ⁿ= 0.005417 × 6.9913 = 0.037876.

Then, calculate the denominator: (1 + r)ⁿ− 1 = 6.9913 − 1 = 5.9913.

Divide: 0.037876 / 5.9913 = 0.006322.

Finally, multiply by the principal: $280,000 × 0.006322 = $1,770 per month (rounded to the nearest dollar).

That $1,770 covers only principal and interest. Over 30 years, you will make 360 payments totaling $637,200, meaning you pay $357,200 in interest on top of the original $280,000 borrowed. That interest cost is why your rate matters so much — and why even small changes have an outsized impact.

Understanding PITI: Your True Monthly Housing Cost

When lenders evaluate whether you can afford a mortgage, they don't just look at the $1,770 principal-and-interest payment. They consider PITI: Principal, Interest, Taxes, and Insurance. Let's add each component to our example.

Property Taxes

Property tax rates vary widely by location, but the national average effective rate is roughly 1% of assessed value. On a $350,000 home, that works out to about $3,500 per year, or $292 per month. Some counties charge significantly more — parts of New Jersey and Texas can reach 2% to 2.5% — so always check your local rate.

Homeowner's Insurance

The average annual homeowner's insurance premium in the U.S. is approximately $1,400 to $1,800 for a $350,000 home, depending on location, coverage level, and deductible. Using the lower end, $1,400 per year comes to $117 per month.

Private Mortgage Insurance (PMI)

Because we put 20% down in our example, PMI is not required. However, if your down payment is less than 20%, lenders require PMI to protect themselves against default. PMI typically costs between 0.5% and 1.5% of the original loan amount per year. On a $280,000 loan, that would add roughly $117 to $350 per month. PMI is usually removed automatically once you reach 22% equity, or you can request removal at 20%.

The Full PITI Payment

Adding it all up for our example:

• Principal & Interest: $1,770
• Property Tax: $292
• Homeowner's Insurance: $117
• PMI: $0 (20% down)

Total PITI: $2,179 per month. That is the number you should budget for — not just the $1,770. Use our Loan Calculator to model different down payment amounts and see how PMI affects your true monthly cost.

How Your Rate and Term Change Everything

Small differences in your interest rate or loan term produce dramatic changes in both your monthly payment and the total interest you pay. Let's compare three rate scenarios on the same $280,000 loan over 30 years.

Rate Comparison: Same Loan, Different Rates

• 5.5% rate:Monthly P&I = $1,589. Total interest over 30 years = $292,180.
• 6.5% rate:Monthly P&I = $1,770. Total interest over 30 years = $357,200.
• 7.5% rate:Monthly P&I = $1,958. Total interest over 30 years = $424,880.

Going from 5.5% to 7.5% adds $369 per month and costs an extra $132,700 in total interestover the life of the loan. That single two-point spread is the difference between paying $292,000 and $425,000 in interest — on the same house with the same down payment.

Term Comparison: 15-Year vs 30-Year

Now let's compare loan terms. At 6.5% on $280,000:

• 30-year term:Monthly P&I = $1,770. Total interest = $357,200.
• 15-year term:Monthly P&I = $2,441. Total interest = $159,380.

The 15-year mortgage costs $671 more per month, but you save $197,820 in interest and own your home free and clear in half the time. Lenders also typically offer lower rates on 15-year mortgages (often 0.5% to 0.75% less), which amplifies the savings further.

To compare specific loan scenarios side by side with your own numbers, try our Loan Comparison Calculator. Seeing the exact difference in total cost often changes which option feels right.

What the Amortization Schedule Reveals

An amortization schedule is a table showing exactly how each of your 360 payments splits between principal and interest. What surprises most borrowers is how dramatically that split changes over time.

The First Payment vs the Last

Using our $280,000 loan at 6.5% over 30 years, here is what the first and last payments look like:

• Payment #1: $1,517 goes to interest, $253 goes to principal. That means 85.7% of your first payment is pure interest.
• Payment #360: $10 goes to interest, $1,760 goes to principal. Now 99.4% is building your equity.

This front-loaded interest structure has important implications. In the first five years of a 30-year mortgage, you pay approximately $87,600 in interest but reduce your principal by only $18,600. After ten years, you have paid roughly $169,000 in interest and reduced your loan balance by only about $44,200 (from $280,000 to approximately $235,800).

Why This Matters for Refinancing

If rates drop significantly a few years into your mortgage, refinancing can save you money because you are resetting the amortization schedule during the period when interest charges are highest. However, if you are 20 years into a 30-year loan, refinancing into a new 30-year term means restarting that front-loaded interest clock — which can actually cost you more in the long run even at a lower rate.

Use our Refinance Calculator to compare your current remaining loan against a potential new loan and see the exact break-even point in months.

Why This Matters for Extra Payments

Extra payments in the early years of your mortgage have an outsized impact because every dollar goes directly to principal reduction, which lowers the balance that future interest is calculated on. An extra $200 per month on our example loan, starting from month one, would shave roughly 6 years off the mortgage and save approximately $82,000 in interest.

Even irregular extra payments — a tax refund here, a bonus there — add up over time. The key is making them early in the loan when the interest savings compound the most. Our Mortgage Payoff Calculator lets you model extra payment scenarios and see exactly how many months you can cut off your loan.

Reading Your Amortization Table

Here are milestones from our example loan to illustrate the payoff progression:

• Year 1: Balance drops from $280,000 to $276,280. You paid $21,240 but only $3,720 went to principal.
• Year 5: Balance is approximately $264,480. You have paid $106,200 total but only $15,520 in principal.
• Year 10: Balance is approximately $244,300. Over $169,000 paid in interest so far.
• Year 15: Balance is approximately $217,400. You are halfway through the term but have only paid off 22% of the loan.
• Year 20: Balance is approximately $179,900. The tipping point is near — principal now exceeds interest in each payment.
• Year 25: Balance is approximately $123,700. Payments are now mostly principal.
• Year 30: Balance reaches $0. Final payment wraps up $357,200 in total interest paid.

Putting It All Together

Calculating your mortgage payment is not difficult once you know the formula and understand what goes into PITI. The critical insight is that the interest rate and loan term matter far more than most buyers realize. A single percentage point on a $280,000 loan shifts your total cost by $65,000 or more. Choosing a 15-year term over 30 years saves nearly $200,000 in interest — if you can handle the higher monthly payment.

Before you commit, model multiple scenarios. Try different down payment amounts, compare rates from several lenders, and look at both 15-year and 30-year options. Check how extra payments could accelerate your payoff. The math is straightforward, and the savings from doing your homework can be tens of thousands of dollars.

Start by plugging your numbers into our Mortgage Calculator to see your estimated payment, then explore the amortization schedule to understand where every dollar goes.