The mortgage payment formula
A standard fixed-rate mortgage is repaid in equal monthly installments. The payment is M = P × r / (1 − (1 + r)−n), where P is the amount borrowed, r the monthly interest rate (annual rate ÷ 12) and n the number of monthly payments. Each month, interest is charged on the remaining balance and the rest of the payment reduces the principal — so early payments are mostly interest and later payments mostly principal.
Example: $320,000 at 6.5% for 30 years
The monthly principal and interest payment is $2,022.62. Over 360 payments you pay $408,142 in interest, for a total of $728,142. Adding just $200 a month pays the loan off in 23 years and 5 months and saves $105,429 in interest.
| Year | Principal paid | Interest paid | Balance at year end |
|---|---|---|---|
| 1 | $3,577 | $20,695 | $316,423 |
| 5 | $4,636 | $19,636 | $299,555 |
| 10 | $6,410 | $17,861 | $271,284 |
| 20 | $12,257 | $12,014 | $178,129 |
| 30 | $23,438 | $833 | $0 |
Fixed payment vs. constant principal
Most mortgages in the US, UK and Spain use fixed payments (also called the French system). Some lenders, especially in Brazil, use constant principal (SAC): you repay the same principal every month, so the first payment is higher ($2,622.22 in the example above) but payments fall over time and total interest is lower ($312,867).
Taxes, insurance and fees
Lenders often collect property tax and homeowners insurance through an escrow account. Enter annual amounts and HOA dues to see your full monthly housing cost (PITI). Private mortgage insurance (PMI), usually required with less than 20% down, is not calculated automatically — add it to the HOA/other field.
Tips to pay less interest
- Even small extra principal payments early in the loan have the biggest effect.
- A shorter term (15 or 20 years) has a higher payment but much lower total interest.
- Compare offers using the APR, which includes fees, not only the nominal rate.
- Check whether your loan has prepayment penalties before making extra payments.
This calculator assumes a fixed rate for the full term. For adjustable-rate mortgages, run it with different rates to see a range of outcomes.
Frequently asked questions
How is a monthly mortgage payment calculated?
With the annuity formula M = P·r / (1 − (1 + r)^−n), using the monthly rate r and the number of payments n. Taxes, insurance and HOA fees are added on top.
How much do extra payments save?
In our example, $200 extra per month on a $320,000 loan at 6.5% saves $105,429 of interest. Use the extra-payment fields to test your own numbers.
What is an amortization schedule?
A table that shows, for every payment, how much goes to interest, how much reduces the principal and the remaining balance. You can view it by month or year and download it as CSV.
Does the calculator include PMI?
Not automatically. If you pay private mortgage insurance, add the monthly amount to the “HOA / other fees” field.
Is my data stored?
No. All calculations run in your browser; nothing you type is sent to our servers.