To calculate a mortgage payment, use the formula M = P × i ÷ (1 − (1 + i)^−n), where P is the loan amount, i is the annual rate divided by 12 and n is the number of monthly payments. A $320,000 loan at 6.5% for 30 years works out to $2,022.62 a month for principal and interest.
That number is the core of your payment, but it is not the whole bill. Property tax, homeowner’s insurance, and often mortgage insurance and HOA dues sit on top of it. Below you will see how to calculate a mortgage payment by hand, what each piece means, and how the rate, the term and your down payment move the result. If you just want the answer, plug your numbers into our mortgage calculator and come back here to understand why it says what it says.
The mortgage payment formula
Almost every fixed-rate home loan in the US is a fully amortizing loan. You pay the same amount every month, and by the last payment the balance hits exactly zero. The formula that makes that happen is:
M = P × i ÷ (1 − (1 + i)^−n)
- M is the monthly principal and interest payment.
- P is the principal, the amount you borrow (price minus down payment, plus any financed fees).
- i is the monthly interest rate: the annual rate as a decimal, divided by 12. A 6.5% rate becomes 0.065 ÷ 12 = 0.0054167.
- n is the number of payments: 360 for a 30-year loan, 180 for a 15-year loan.
You will also see it written as M = P × [i(1 + i)^n] ÷ [(1 + i)^n − 1]. It is the same equation rearranged, and both give identical answers. The formula is the standard annuity payment, the same math behind car loans and personal loans, and it is what our mortgage amortization calculator uses to build a full payment schedule.
How to calculate a mortgage payment step by step
Let’s run a realistic example. You are buying a $400,000 home, putting 20% down, and you have been quoted 6.5% on a 30-year fixed loan.
- Find the loan amount. 20% of $400,000 is $80,000, so P = $400,000 − $80,000 = $320,000.
- Convert the rate. i = 0.065 ÷ 12 = 0.00541667.
- Count the payments. n = 30 × 12 = 360.
- Work out (1 + i)^n. 1.00541667 raised to the 360th power is about 6.9916. Its reciprocal, (1 + i)^−n, is about 0.14303.
- Finish the formula. 1 − 0.14303 = 0.85697. Then $320,000 × 0.00541667 = $1,733.33, and $1,733.33 ÷ 0.85697 = $2,022.62.
Over 360 payments you would pay $728,142 in total, which means $408,142 of interest on top of the $320,000 you borrowed. That is the part that surprises most first-time buyers: on a 30-year loan at this rate, the interest is larger than the loan itself.
Use a spreadsheet if you prefer. In Excel or Google Sheets, =PMT(0.065/12, 360, -320000) returns 2,022.62. The minus sign just tells the function that the loan is money coming to you.
Why the early payments are mostly interest
Each month the lender charges interest on the balance you still owe. In month one that is $320,000 × 0.00541667 = $1,733.33, so only $289.28 of your $2,022.62 goes toward the loan. As the balance falls, the interest portion shrinks and the principal portion grows. The table shows how that plays out across the loan.
| Year of loan | Interest paid that year | Principal paid that year | Balance at year end |
|---|---|---|---|
| 1 | $20,695 | $3,577 | $316,423 |
| 5 | $19,636 | $4,636 | $299,555 |
| 10 | $17,861 | $6,410 | $271,284 |
| 15 | $15,407 | $8,864 | $232,189 |
| 20 | $12,014 | $12,257 | $178,129 |
| 25 | $7,322 | $16,949 | $103,373 |
| 30 | $833 | $23,438 | $0 |
Notice that after ten years you have paid about $242,700 in payments but still owe $271,284. The crossover, where principal finally outweighs interest each year, does not arrive until around year 20. This is why selling or refinancing early in a loan leaves you with less equity than you might expect.
PITI: what your full monthly payment includes
Lenders and real estate agents talk about PITI: principal, interest, taxes and insurance. The formula above only gives you the P and I. Your actual monthly bill usually also includes:
- Property tax. Rates vary wildly by county, from well under 0.5% of value a year to over 2%. On a $400,000 home at 1.1%, that is $4,400 a year, or $366.67 a month.
- Homeowner’s insurance. Say $1,800 a year, or $150 a month. In hurricane, wildfire or hail country it can be far more.
- Private mortgage insurance (PMI). Conventional loans with less than 20% down carry PMI, typically 0.3% to 1.5% of the loan a year.
- HOA dues. Condos and many newer subdivisions charge these monthly. They are usually paid directly, not through your lender, but they count toward what you can afford.
Most lenders collect tax and insurance through an escrow account, adding one-twelfth of the yearly bills to each payment and paying them on your behalf. For our example, the full picture looks like this: $2,022.62 principal and interest + $366.67 tax + $150 insurance = $2,539.28 a month. That is about 26% more than the formula alone suggests. Our mortgage calculator with taxes and insurance adds these lines for you.
The Consumer Financial Protection Bureau’s Buying a House tools explain escrow, closing disclosures and the Loan Estimate form, which lists every one of these costs line by line. Comparing two Loan Estimates side by side is the most reliable way to see which offer is actually cheaper.
How rate, term and down payment change the payment
Three inputs drive the result. Small changes in any of them add up to tens of thousands of dollars over the life of the loan.
Interest rate
Here is the same $320,000 loan at different rates, on 30-year and 15-year terms:
| Rate | 30-year payment | 15-year payment |
|---|---|---|
| 5.5% | $1,816.92 | $2,614.67 |
| 6.0% | $1,918.56 | $2,700.34 |
| 6.5% | $2,022.62 | $2,787.54 |
| 7.0% | $2,128.97 | $2,876.25 |
| 7.5% | $2,237.49 | $2,966.44 |
Every half point adds roughly $100 to $110 a month on this loan. You can track where average rates sit each week in Freddie Mac’s Primary Mortgage Market Survey. Your own rate depends on your credit score, down payment, loan type and whether you buy discount points. If a lender offers a lower rate for an upfront fee, our mortgage points calculator shows how many months it takes to break even.
Keep in mind that the advertised interest rate and the APR are different numbers. The APR folds in lender fees, so it is the better figure for comparing offers. Our guide on APR vs APY explains the difference in plain terms.
Loan term
A 15-year loan at 6.5% costs $2,787.54 a month, about $765 more than the 30-year version. But total interest drops from $408,142 to $181,758. In practice 15-year loans also tend to come with lower rates; at 6.0% the 15-year interest bill falls to $166,062. The trade-off is cash flow: a higher required payment leaves less room for emergencies, retirement saving and everything else.
Down payment
On the same $400,000 house at 6.5% for 30 years:
- 5% down ($20,000): loan of $380,000, principal and interest of $2,401.86, plus PMI.
- 10% down ($40,000): loan of $360,000, principal and interest of $2,275.44, plus PMI.
- 20% down ($80,000): loan of $320,000, principal and interest of $2,022.62, no PMI.
With 10% down and PMI at 0.5% of the loan a year, you would add $150 a month until the balance falls to 78% of the original home value, which takes about nine years on this schedule. The PMI calculator estimates the premium from your credit score and loan-to-value, and the down payment calculator helps you decide how much cash to put in versus keep in reserve.
What extra payments do to your mortgage
Any money you pay above the required amount goes straight to principal (ask your servicer to apply it that way). Because interest is charged on the remaining balance, each extra dollar saves interest every month for the rest of the loan. Using the $320,000 loan at 6.5%:
| Extra each month | Paid off in | Total interest | Interest saved |
|---|---|---|---|
| $0 | 30 years | $408,142 | None |
| $100 | 26 years 2 months | $346,444 | $61,698 |
| $200 | 23 years 5 months | $302,714 | $105,429 |
| $500 | 18 years | $222,590 | $185,552 |
An extra $200 a month, about 10% of the payment, cuts more than six and a half years off the loan. You can test your own amounts in the mortgage with extra payments calculator.
Accelerated biweekly payments work the same way. You pay half the monthly amount every two weeks, which adds up to 26 half-payments, or 13 full payments a year. On this loan that pays the mortgage off in a little over 24 years and saves around $93,000 to $94,000 in interest, depending on how your servicer credits the payments. The biweekly mortgage calculator models it exactly. Before signing up for a paid biweekly program, check that your lender allows extra principal payments for free; you can usually get the same result by adding one-twelfth of a payment each month.
Paying ahead is not always the best use of spare cash. If you carry credit card debt at 22% or lack an emergency fund, those come first. Our guide to debt snowball vs avalanche covers how to order your debts. And money in a retirement account with an employer match can earn more than the mortgage rate costs you. This guide is general information, not personal financial advice, so weigh it against your own situation.
Common mistakes when calculating a mortgage payment
- Using the annual rate in the formula. The rate must be monthly (annual ÷ 12) and the term must be in months. Mixing them gives a payment that is wildly wrong.
- Forgetting taxes and insurance. A payment that looks affordable at $2,000 can be $2,500 or more once escrow is added.
- Entering the rate as a whole number. 6.5% is 0.065, not 6.5.
- Ignoring PMI. With less than 20% down on a conventional loan, budget for it until you reach 20% to 22% equity.
- Assuming the payment never changes. Principal and interest are fixed on a fixed-rate loan, but tax and insurance bills rise, so your escrow payment usually creeps up over time. Adjustable-rate loans can change much more.
- Comparing loans by rate alone. Look at the APR, the closing costs and the total interest over the time you expect to keep the loan.
From payment to budget
Knowing how to calculate a mortgage payment is the first half of the question. The second half is whether that payment fits your income. Lenders commonly use the 28/36 rule: housing costs no more than 28% of gross monthly income, and all debt payments no more than 36%. Our full payment of $2,539 would call for a gross income of about $9,070 a month, or roughly $108,800 a year, under the 28% test. For a full walk-through, read how much house can I afford or try the home affordability calculator.
If you are weighing two or three loan offers, the mortgage comparison calculator lines them up by payment, total interest and total cost. And if you own a home already and want to know what you would save by paying it off sooner, the same extra-payment logic applies. Interest on a mortgage is a form of compounding working against you, which our guide on how compound interest works explains in more depth.
Frequently asked questions
What is the formula to calculate a mortgage payment?
M = P × i ÷ (1 − (1 + i)^−n), where P is the loan amount, i is the monthly interest rate (annual rate ÷ 12) and n is the number of monthly payments. It gives principal and interest only; add property tax, insurance, PMI and HOA dues for the full payment.
How much is the payment on a $300,000 mortgage?
At 6.5% for 30 years, a $300,000 loan costs $1,896.20 a month in principal and interest. At 6.0% it is $1,798.65, and on a 15-year term at 6.5% it is $2,613.32.
Is mortgage interest calculated daily or monthly?
Standard US fixed-rate mortgages charge interest monthly on the outstanding balance, using the annual rate divided by 12. Some loans, such as certain HELOCs, accrue interest daily, and Canadian fixed mortgages compound semi-annually.
Does a bigger down payment always make sense?
It lowers your payment, avoids PMI at 20% and reduces total interest. But do not drain your savings to do it; keeping three to six months of expenses in reserve protects you from having to borrow at much higher rates if something goes wrong.
Is mortgage interest tax-deductible?
If you itemize, interest on up to $750,000 of qualifying mortgage debt is generally deductible. Most households now take the standard deduction instead, so check IRS Publication 936 before counting on the deduction.
Once you can run the formula yourself, mortgage quotes stop being a black box. You can spot a payment that leaves out escrow, see what an extra $100 a month really buys you, and judge whether a 15-year loan is worth the squeeze. Start with your real numbers, add tax and insurance, and pick the payment you can carry comfortably in a bad month, not just a good one.