How to Calculate Your Mortgage Payment: The Complete Formula

Understanding how your mortgage payment is calculated puts you in the driver's seat when shopping for a home. Once you know the formula, you can quickly estimate payments for any house you see — no calculator app needed.

The Core Formula: Principal and Interest

Your monthly mortgage payment has two main parts: principal (the amount you borrowed) and interest (the cost of borrowing). The formula for the monthly payment on a fixed-rate mortgage is:

M = P × [r(1+r)^n] / [(1+r)^n - 1]

Where:

• M = Monthly payment
• P = Principal loan amount
• r = Monthly interest rate (annual rate ÷ 12)
• n = Total number of payments (loan term in years × 12)

Let's work through an example. You're buying a $400,000 home with 10% down ($40,000). Your loan amount is $360,000. Your interest rate is 6.5% on a 30-year fixed loan.

r = 0.065 ÷ 12 = 0.005417
n = 30 × 12 = 360

M = 360,000 × [0.005417(1.005417)^360] / [(1.005417)^360 - 1]
M = 360,000 × [0.005417 × 6.99] / [6.99 - 1]
M = 360,000 × 0.00632
M = $2,275.44

So your principal and interest payment would be approximately $2,275 per month. Try this yourself with our free mortgage calculator.

Adding Property Taxes

Property taxes are typically collected monthly as part of your mortgage payment and held in an escrow account. Your lender pays the tax bill when it comes due.

To estimate monthly property taxes, divide the annual property tax bill by 12. On a $400,000 home, annual property taxes might range from $2,000 (low-tax state) to $8,000+ (high-tax area like New Jersey or Illinois). At $4,800/year, that's $400 per month.

Adding Homeowners Insurance

Your lender requires homeowners insurance to protect their collateral. Premiums vary by location, home value, coverage level, and your deductible. Most homeowners pay between $800 and $2,000 per year. At $1,200/year, that's $100 per month.

Adding PMI (If Applicable)

If your down payment is less than 20%, add PMI. On our $360,000 loan with 10% down and good credit, PMI might be around $180 per month. Use our calculator with PMI for an exact figure.

Your Total Monthly Payment (PITI)

Putting it all together for our example:

• Principal & Interest: $2,275
• Property Taxes: $400
• Homeowners Insurance: $100
• PMI (10% down): $180
• Total Monthly Payment: $2,955

How Interest Rates Affect Your Payment

Here's where it gets eye-opening. A 1% change in interest rate makes a huge difference:

• At 5.5%: P&I = $2,044/month (saves $231/month vs 6.5%)
• At 6.5%: P&I = $2,275/month
• At 7.5%: P&I = $2,517/month (costs $242/month more vs 6.5%)

Over 30 years, that 1% difference adds up to roughly $87,000. This is why timing your purchase around interest rate cycles — or buying down your rate — matters so much.

How Extra Payments Save You Money

Paying just $100 extra per month toward principal on a $360,000 loan at 6.5% would save you about $52,000 in interest and pay off your loan 3.5 years early. $200 extra saves roughly $92,000 and cuts 6 years off.

Check the exact impact with our amortization schedule calculator. It shows month-by-month how much goes to principal vs interest, and what extra payments can do.