How to Calculate Mortgage Payments
A mortgage payment consists of principal (the loan amount) and interest (the cost of borrowing). This calculator uses the standard amortization formula to determine your fixed monthly payment.
Mortgage Payment Formula
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 × 12)
Example Calculation
For a $300,000 loan at 6.5% APR over 30 years:
- Monthly rate: 6.5% ÷ 12 = 0.542%
- Number of payments: 30 × 12 = 360
- Monthly payment: $1,896.20
- Total interest paid: $382,633
Understanding Amortization
With each payment, a portion goes to interest and the rest to principal. Early payments are mostly interest; later payments are mostly principal. The amortization schedule shows this breakdown for every payment.
Tips for Lower Mortgage Costs
- Larger down payment: Reduces principal and may eliminate PMI
- Shorter loan term: Higher payments but much less total interest
- Better credit score: Qualifies you for lower interest rates
- Extra payments: Even small extra payments reduce total interest significantly