How to Calculate Your Mortgage Payment (With Formula + Examples)

Your monthly mortgage payment isn't a mystery — it's one formula with four inputs. Here's how it works, with a full worked example.

Why your mortgage payment is what it is

Every month, millions of homeowners pay a number they didn't compute themselves. The bank ran the math, the number appeared on the disclosure, and life went on. But that number isn't arbitrary — it comes from a single, elegant formula that balances the time value of money against the slow grind of amortization. Once you understand it, you can answer real questions: How much house can I actually afford? What happens if I pay an extra $200 a month? Is a 15-year loan really that much cheaper than a 30-year?

This guide walks through the formula piece by piece, works a full example by hand, and then covers the parts of your payment the formula doesn't include — because the check you write each month is bigger than principal and interest alone.

The mortgage payment formula

A fixed-rate mortgage payment is calculated with the standard amortization formula:

M = P × r(1+r)ⁿ / ((1+r)ⁿ − 1)

Here's what each letter means:

• M — your monthly payment (principal + interest only)
• P — the principal, i.e. the amount you're borrowing
• r — the monthly interest rate: your annual rate divided by 12
• n — the total number of monthly payments (360 for a 30-year loan, 180 for a 15-year)

The intuition: the formula finds the fixed monthly amount whose present value, discounted at your interest rate over the life of the loan, exactly equals what you borrowed. Early payments are mostly interest; late payments are mostly principal. The total stays level while the mix shifts — that's amortization.

Worked example: $350,000 at 6.5% for 30 years

Let's run the numbers for a $350,000 loan at 6.5% annual interest over 30 years.

1. Monthly rate: r = 0.065 / 12 = 0.0054167
2. Number of payments: n = 30 × 12 = 360
3. Compute (1+r)ⁿ: (1.0054167)³⁶⁰ ≈ 6.992
4. Numerator: r × (1+r)ⁿ = 0.0054167 × 6.992 ≈ 0.037874
5. Denominator: (1+r)ⁿ − 1 = 6.992 − 1 = 5.992
6. Monthly payment: M = 350,000 × (0.037874 / 5.992) ≈ $2,212.24

So principal and interest run about $2,212 a month. Over 30 years you'd pay roughly $796,400 total — meaning about $446,400 of that is interest. That interest figure surprises most first-time buyers, and it's the single best argument for understanding this formula before you sign.

What the formula leaves out: PITI

Lenders quote your full monthly housing cost as PITI — Principal, Interest, Taxes, and Insurance. The formula above only covers the PI. The rest:

• Property taxes: typically 0.5%–2% of the home's value per year depending on your state, divided into monthly escrow payments. On a $400,000 home at 1.1%, that's about $367/month.
• Homeowner's insurance: usually $100–$250/month, also escrowed.
• PMI (private mortgage insurance): if your down payment is under 20%, expect 0.5%–1% of the loan amount per year until you hit 20% equity.
• HOA dues: anywhere from $0 to many hundreds per month, and they rise.

Add it up and the real monthly check can easily run 30–50% above the principal-and-interest number. When budgeting, always use PITI — never the PI alone.

The power of extra payments

Because early payments are interest-heavy, even small extra principal payments early in the loan have an outsized effect. On that $350,000 loan above, adding just $200/month toward principal would shave roughly 6 years off the loan and save over $110,000 in interest. That's the amortization curve working in reverse: every extra dollar kills future interest on itself.

Two popular approaches: make one extra full payment per year (equivalent to paying biweekly), or round your payment up to the next hundred. Both are painless ways to attack the interest-heavy early years.

15-year vs. 30-year: the real tradeoff

A 15-year loan at the same 6.5% rate on $350,000 would cost about $3,049/month — roughly $837 more — but you'd pay only ~$198,800 in total interest versus ~$446,400. The 15-year builds equity dramatically faster and usually carries a lower rate on top. The catch is cash flow: that higher payment is mandatory, while extra payments on a 30-year loan are optional. Many financial planners prefer the 30-year loan plus voluntary extra payments — you get flexibility with nearly the same interest savings.

A quick mental estimate

Need a ballpark without a calculator? A handy rule of thumb: at 7% interest, every $100,000 borrowed costs roughly $665/month on a 30-year loan. Scale it: $300,000 ≈ $1,995/month. It's within a few percent for rates between 6% and 8%. For anything exact — a real offer, a refinance decision — run the real numbers.

Frequently asked questions