Your mortgage payment is likely the largest single expense in your monthly budget. Understanding how it's calculated helps you make informed decisions about home buying, refinancing, and budgeting.
The Mortgage Payment Formula
**M = P × [r(1+r)^n] / [(1+r)^n - 1]**
- M = Monthly payment
- P = Loan amount (principal)
- r = Monthly interest rate (annual rate / 12)
- n = Total number of payments (years × 12)
Breaking It Down
For a $350,000 home with $70,000 down (20%) at 6.5% for 30 years:
1. Loan amount: $350,000 - $70,000 = $280,000 2. Monthly rate: 6.5% / 12 = 0.542% 3. Total payments: 30 × 12 = 360 4. Monthly payment: $1,755.83
What's Included in Your Payment
Your monthly mortgage payment typically includes four components (PITI):
- **Principal**: The amount going toward paying down the loan
- **Interest**: The cost of borrowing
- **Taxes**: Property taxes (often escrowed)
- **Insurance**: Homeowners insurance (and PMI if applicable)
This calculator covers principal and interest only. Your actual payment will be higher when taxes and insurance are included.
How Interest Rate Affects Payment
On a $280,000 loan over 30 years:
- 3%: $1,180/month
- 5%: $1,503/month
- 6.5%: $1,756/month
- 8%: $2,054/month
A 1% rate change can mean hundreds of dollars per month and tens of thousands over the life of the loan.
15-Year vs 30-Year Mortgage
A 15-year mortgage has higher monthly payments but saves enormous interest:
- 30-year at 6.5%: $1,756/month, $632,094 total
- 15-year at 5.5%: $2,286/month, $411,473 total
The 15-year saves $220,621 in interest but costs $530 more per month.
Down Payment Impact
A larger down payment reduces your loan amount, monthly payment, and total interest. It also helps you avoid PMI (required when you put less than 20% down).
Use our Mortgage Calculator to calculate your exact payment, or check how much house you can afford with our Mortgage Affordability Calculator.