Mortgage Calculator

How Mortgage Payments Are Calculated

Lenders use one standard formula to set your monthly payment, and it is designed so you pay the loan off exactly, on schedule, with the very last payment. It looks intimidating but the idea is simple:

M = P × r(1+r)^n / ((1+r)^n − 1)
P is your loan amount (home price minus down payment), r is your monthly interest rate (the annual rate divided by 12), and n is the total number of monthly payments (years × 12).

Worked example. A $400,000 home with an $80,000 down payment means you borrow $320,000. At 6.5% annual interest for 30 years: r = 0.065 / 12 = 0.005417, n = 360. Plug those in and the monthly payment comes out to about $2,023. Over the full 30 years you pay roughly $408,000 in interest, for a total cost of about $728,000.

Why early payments are mostly interest. Each month the lender charges interest on the balance you still owe, then the rest of your payment chips away at the principal. Early on, the balance is huge, so the interest slice dominates. On the example above, year one payments total about $24,271, but only around $3,580 of that reduces the loan. The remaining $20,690 is interest. As the balance shrinks year by year, the ratio flips, and by the final years nearly all of each payment goes to principal. That flip is what the amortization table above shows, year by year.

What Affects Your Monthly Payment

Interest rate. This is the biggest lever. Even a single percentage point moves the payment hundreds of dollars a month on a typical loan and tens of thousands in total interest. Rate shopping is the highest-value hour you will spend in the whole home-buying process.

Loan term. A 30-year loan spreads payments thin, keeping them affordable but piling on interest. A 15-year loan roughly halves the total interest but demands a much bigger monthly check. Use the term dropdown above to compare both on your own numbers.

Down payment size. Every dollar of down payment is a dollar you never borrow, so it shrinks your loan amount, your monthly payment, and your total interest. Hitting 20% down has a bonus: lenders usually drop private mortgage insurance (PMI) at that point, which saves you a separate monthly fee.

What this calculator does not include. The number above is principal and interest only. A real mortgage bill also includes property taxes, homeowner's insurance, and possibly PMI or HOA dues. Those extras vary wildly by location and lender, so this version keeps the math clean and leaves escrow out. Treat the result as the core of your payment, not the full bill.