How to Calculate Your Monthly Mortgage Payment — Free Calculator
The Mortgage Payment Formula
Every fixed-rate mortgage payment is calculated using the same formula. Understanding it helps you evaluate loan offers, model scenarios, and verify the numbers your lender gives you.
The standard formula for a monthly mortgage payment is:
M = P × [r(1+r)^n] / [(1+r)^n − 1]
Where:
M = monthly payment
P = principal loan amount
r = monthly interest rate (annual rate ÷ 12)
n = total number of payments (loan term in years × 12)For example, a $400,000 loan at 6.5% annual interest over 30 years:
- P = $400,000
- r = 6.5% ÷ 12 = 0.5417% = 0.005417
- n = 30 × 12 = 360 payments
- M = $400,000 × [0.005417 × (1.005417)^360] / [(1.005417)^360 − 1]
- M ≈ $2,528/month
This covers principal and interest only. Your actual monthly payment will typically also include property taxes, homeowner's insurance, and possibly private mortgage insurance (PMI) — all separate from the loan payment itself.
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Open Mortgage Calculator →What Your Monthly Payment Actually Covers
Each mortgage payment is split between two components that shift dramatically over the life of the loan:
Interest
In the early years of a mortgage, the majority of each payment goes toward interest. For the $400,000 / 6.5% example above, the first payment of $2,528 breaks down roughly as:
- Interest: $400,000 × 0.005417 = $2,167
- Principal: $2,528 − $2,167 = $361
Only $361 of that first $2,528 payment reduces what you owe. The rest services the interest charge.
Principal
As you pay down the loan balance, the interest portion of each payment shrinks, and more of your fixed payment goes toward principal. By year 25 of a 30-year mortgage, the split reverses — most of each payment is now reducing your balance. This process is called amortization.
Fixed vs. Variable (Adjustable) Rate Mortgages
| Feature | Fixed-Rate | Adjustable-Rate (ARM) |
|---|---|---|
| Interest rate | Locked for loan term | Fixed initially, then adjusts periodically |
| Monthly payment | Constant throughout loan | Changes when rate adjusts |
| Best for | Long-term stability, rate certainty | Short-term ownership, lower initial rate |
| Rate risk | None — rate is locked | Payment can increase significantly |
| Common terms | 15-year, 30-year | 5/1, 7/1, 10/1 ARM |
A 5/1 ARM has a fixed rate for the first 5 years, then adjusts annually based on a benchmark rate (typically SOFR) plus a margin. If you plan to sell within 7 years, an ARM may offer a lower starting rate. If you're planning to stay long-term, a fixed rate eliminates rate risk entirely.
How the Down Payment Affects Your Payment
A larger down payment reduces your loan principal, which directly reduces your monthly payment and total interest paid. But the impact isn't linear — a 20% down payment does more than cut 20% off your payment:
| Home Price | Down Payment | Loan Amount | Monthly Payment (6.5%, 30yr) | PMI Required? |
|---|---|---|---|---|
| $500,000 | 5% ($25,000) | $475,000 | ~$3,003 | Yes |
| $500,000 | 10% ($50,000) | $450,000 | ~$2,844 | Yes |
| $500,000 | 20% ($100,000) | $400,000 | ~$2,528 | No |
| $500,000 | 25% ($125,000) | $375,000 | ~$2,370 | No |
Private Mortgage Insurance (PMI) is required by most lenders when your down payment is less than 20%. PMI typically costs 0.5–1.5% of the loan amount per year, adding $200–600/month to a $400,000 loan. It cancels automatically once you reach 20% equity.
Amortization: How Your Balance Changes Over Time
Amortization is the schedule of payments that reduces your loan to zero by the end of the term. For a 30-year mortgage, that's 360 payments. Key milestones for the $400,000 / 6.5% example:
| Year | Remaining Balance | Equity (20% down scenario) | Cumulative Interest Paid |
|---|---|---|---|
| Start | $400,000 | $100,000 | $0 |
| Year 5 | $376,000 | ~$124,000 | ~$127,000 |
| Year 10 | $345,000 | ~$155,000 | ~$249,000 |
| Year 20 | $258,000 | ~$242,000 | ~$458,000 |
| Year 30 | $0 | $500,000+ | ~$510,000 |
The total interest paid on a $400,000 loan at 6.5% over 30 years is roughly $510,000 — more than the loan itself. This is why refinancing to a lower rate (when it makes sense) or making extra principal payments can save enormous sums over the life of the loan.
Tips for First-Time Buyers
Get Pre-Approved Before You Shop
A pre-approval letter tells you how much you can borrow and shows sellers you're a serious buyer. It also forces you to identify your actual budget before you fall in love with a house. Use a mortgage calculator to work backward: decide on a comfortable monthly payment, then calculate the loan amount that produces it.
Compare Total Loan Cost, Not Just Monthly Payment
A 30-year mortgage has a lower monthly payment than a 15-year mortgage on the same loan, but you'll pay roughly twice as much total interest. If you can afford the higher payment, a 15-year mortgage can save six figures in interest and builds equity twice as fast.
Don't Forget the Other Costs
Principal and interest are the core, but ownership has additional costs that belong in your monthly budget:
- Property taxes: Typically 1–2% of home value per year, paid monthly into an escrow account
- Homeowner's insurance: Roughly $100–200/month for most homes
- PMI: 0.5–1.5% of loan per year if down payment is less than 20%
- HOA fees: $200–800/month in many communities
- Maintenance: Expect 1–2% of home value per year in repairs and upkeep
Extra Principal Payments Have an Outsized Effect
An extra $200/month in principal on a $400,000 / 6.5% 30-year mortgage saves over $65,000 in interest and cuts roughly 4 years off the loan. Even one extra payment per year (making 13 payments instead of 12) can shave 4–5 years off a 30-year term.
Run the Numbers for Your Loan
Model your mortgage with our free calculator — monthly payment, amortization schedule, total interest, and break-even analysis for refinancing scenarios.
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