How to calculate a monthly mortgage payment
The amortization formula in plain English, what your bank does that this calculator does not, and the single most useful question to ask before signing.
A mortgage is the largest single financial decision most people make. Understanding how the monthly payment is computed — and what changes when one of the inputs shifts — is the difference between getting a good deal and not. The Loan Calculator gives you the math; this guide gives you the intuition.
The amortization formula
For a fixed-rate loan with monthly payments:
M = P × (r × (1 + r)^n) / ((1 + r)^n − 1)
Where:
- M is the monthly payment
- P is the principal (the amount borrowed)
- r is the monthly interest rate (annual rate / 12)
- n is the number of monthly payments (years × 12)
You can derive this from first principles: each month you pay interest on the remaining balance, then pay down some principal. After exactly n payments, the balance reaches zero. Working backwards from "balance = 0 after n months" gives the formula.
You will never actually compute this by hand. The calculator does it. But the structure is worth knowing because it tells you which inputs move the needle.
The three knobs
Principal. Each dollar of borrowed principal costs roughly the same total interest, proportionally. Borrow $200,000 instead of $400,000 → half the interest.
Interest rate. The big lever. A 1 percentage point reduction in rate (say from 7% to 6%) reduces total interest paid by roughly 15% on a 30-year mortgage. Over $300,000, that's $50,000+ savings.
Term. Counter-intuitive: a shorter term has a higher monthly payment but dramatically less total interest. A 15-year mortgage at the same rate costs less than half the interest of a 30-year, because the principal is paid down so much faster.
What changes the monthly payment most
In rough order of impact:
- Lowering the rate has the biggest impact on total cost.
- Increasing the down payment lowers the principal, which lowers both monthly and total cost.
- Shortening the term dramatically lowers total interest, raises monthly payment.
- Making extra principal payments (when allowed) acts like a shorter term without the higher minimum.
If you can afford a 15-year payment, taking a 30-year and aggressively prepaying gives you flexibility (drop to the minimum if cash gets tight) at the cost of slightly higher overall interest. Pick the option that matches your risk tolerance.
What this calculator does not show
Closing costs and fees. Origination fees, appraisal, title insurance, recording fees — these typically run 2-5% of the loan amount. None of this is in the principal-and-interest math.
Property tax and insurance. Banks often roll these into the monthly escrow payment, making the "all-in" monthly cost 25-40% higher than the pure principal-and-interest figure.
Mortgage insurance. With less than 20% down, you'll typically pay PMI in the US. A few percent annually until the equity threshold is reached.
Rate adjustments. Adjustable-rate mortgages (ARMs) have payments that change over time. This calculator handles fixed-rate only.
Tax deductions. In some jurisdictions, mortgage interest is tax-deductible. That can reduce the effective cost — but only at your marginal tax rate, and only on interest, not principal.
The single most useful question
Before signing anything, ask: "What is the total amount I will pay over the life of the loan?" Have your lender print it. Compare it to the principal. The ratio is roughly total / principal. For typical 30-year US mortgages in 2026 that ratio is 1.8 to 2.4 — you pay 1.8 to 2.4 times the amount you borrowed.
If that number surprises you, run the calculator with a shorter term, a larger down payment, or a different rate. You'll see how much each lever moves the total.