How your mortgage payment is calculated
A standard fixed-rate mortgage is an amortizing loan: you pay the same amount every month, and by the end of the term the loan is fully repaid. Early payments are mostly interest; as the balance falls, more of each payment goes to principal.
M = P × r ÷ (1 − (1 + r)^−n)
M is the monthly payment, P the loan amount (price minus down payment), r the monthly interest rate (annual rate ÷ 12 ÷ 100) and n the number of monthly payments.
Example: you buy a home for $400,000 with a 20% down payment of $80,000, so you borrow $320,000. At 6.5% for 30 years (360 payments), the monthly principal and interest payment is $2,022.62. In the first month, $1,733.33 is interest and only $289.28 reduces the balance. Over 30 years you pay $408,142 in interest, more than the amount borrowed.
15-year versus 30-year
With the same $320,000 loan at 6.5%, a 15-year term raises the monthly payment to $2,787.54 but cuts the total interest to $181,758, saving more than $226,000. Lenders often offer a slightly lower rate on 15-year loans, which makes the difference even bigger. A 30-year loan keeps payments affordable and gives flexibility; you can still pay extra when you can.
What the payment does not include
This calculator shows principal and interest. Your actual monthly housing cost is usually higher:
- Property taxes and homeowners insurance, often collected by the lender in an escrow account (the "T" and "I" in PITI).
- Private mortgage insurance (PMI) in the US if you put down less than 20% on a conventional loan, typically 0.3% to 1.5% of the loan per year until you reach 20% equity.
- HOA fees for condos and some neighbourhoods.
- In the UK, the Netherlands and elsewhere, product fees, valuation and legal costs, and in some countries tax relief on mortgage interest.
How much can you afford?
A common US guideline is that housing costs should stay below about 28% of gross monthly income, and all debt payments below 36% (the 28/36 rule). Lenders look at your full credit profile, income stability and down payment. In the UK, lenders typically cap borrowing at around 4 to 4.5 times income, and in the Netherlands income-based lending standards set by the government apply.
Tips to pay less interest
- Shop around. A rate 0.5 percentage points lower on $320,000 saves about $104 a month and more than $37,000 over 30 years.
- Make extra principal payments. Even $100 a month extra shortens a 30-year loan by several years.
- Consider the bigger down payment. Reaching 20% avoids PMI and lowers the monthly payment.
- Think about inflation. Your fixed payment stays the same while wages and prices usually rise; see what it is worth in future money with the inflation calculator.
- For car loans and personal loans, use the loan calculator.
Frequently asked questions
What is the monthly payment on a $300,000 mortgage?
At 6.5% for 30 years, principal and interest on a $300,000 loan is about $1,896 a month. At 6% it is about $1,799.
How is mortgage interest calculated?
Each month, the lender charges the annual rate divided by 12 on the remaining balance. The rest of your fixed payment reduces the balance, so interest falls over time.
What is loan-to-value (LTV)?
LTV is the loan amount divided by the property value. A $320,000 loan on a $400,000 home is 80% LTV. Lower LTV usually means better rates and no mortgage insurance.
Does this include taxes and insurance?
No. Add property taxes, homeowners insurance, PMI and HOA fees to estimate your full monthly cost.
Can I use this calculator outside the US?
Yes. Choose euros or pounds as the currency. The formula for a repayment (annuity) mortgage is the same everywhere.
Is a 15-year mortgage better?
It saves a lot of interest but has higher monthly payments. It suits borrowers with stable income who can comfortably afford the larger payment.
Last reviewed: 2026-10-06. Results are estimates for information only.