How to Calculate Mortgage Payments
A mortgage payment is determined by the loan amount, interest rate, and term length. The standard formula produces a fixed monthly payment that covers both principal and interest, ensuring the loan is fully paid off by the end of the term.
Mortgage Payment Formula
The fixed-rate mortgage payment formula is:
M = P [ r(1+r)^n ] / [ (1+r)^n - 1 ]
- M = monthly payment
- P = principal loan amount
- r = monthly interest rate (annual rate / 12)
- n = total number of payments (years x 12)
How to Use This Calculator
- Loan Amount: Enter the full purchase price of the home.
- Annual Interest Rate: Enter the mortgage interest rate offered by your lender.
- Loan Term: Select 15 or 30 years (or any custom term).
- Down Payment: Enter the amount you will pay upfront.
Understanding Your Amortization
In the early years of a mortgage, most of your payment goes toward interest. As the loan balance decreases, more of each payment goes toward principal. The chart above shows how your remaining balance decreases over time.
Tips for Getting a Better Mortgage Rate
- Improve your credit score to 740+ for the best rates
- Make a larger down payment to reduce the loan-to-value ratio
- Compare offers from at least 3-5 lenders
- Consider buying points to lower your rate if you plan to stay long-term
- Choose a shorter term (15 vs 30 years) for lower rates
Mortgage Calculator FAQ
How is a mortgage payment calculated?
A fixed-rate mortgage payment is calculated using the formula: M = P[r(1+r)^n]/[(1+r)^n-1], where P is the loan amount, r is the monthly interest rate, and n is the total number of payments. This formula ensures equal monthly payments over the loan term.
How much house can I afford?
A common guideline is the 28/36 rule: spend no more than 28% of your gross monthly income on housing costs, and no more than 36% on total debt. For a more accurate estimate, consider your down payment, credit score, and local property taxes.
Should I make a 20% down payment?
A 20% down payment eliminates private mortgage insurance (PMI), which can save $100-300 per month. However, some loan programs accept as little as 3% down. The best choice depends on your savings, local market, and investment alternatives.
Is a 15-year or 30-year mortgage better?
A 15-year mortgage has higher monthly payments but a lower interest rate and dramatically less total interest. A 30-year mortgage has lower payments but costs much more in interest. Choose based on your monthly cash flow and long-term goals.
What is included in a mortgage payment?
A typical mortgage payment includes principal, interest, property taxes, and homeowner's insurance (PITI). Some payments also include PMI and HOA fees. This calculator focuses on principal and interest; add your local taxes and insurance for the full picture.