How your mortgage payment is calculated
Lenders use the standard amortization formula to spread a loan into equal monthly payments over the term:
- M — your monthly payment
- P — the loan principal (home price minus down payment)
- r — monthly interest rate (annual rate ÷ 12)
- n — number of monthly payments (years × 12)
Early payments are mostly interest; over time an increasing share goes toward principal. That's why extra payments made early in a mortgage save far more interest than the same payments made later.
What affects your monthly payment most?
1. Interest rate
On a $320,000 loan over 30 years, the difference between 6% and 7% is roughly $210 per month — over $75,000 across the life of the loan. Even a quarter-point matters, so it pays to compare lenders.
2. Loan term
A 15-year term roughly halves total interest compared with a 30-year term, in exchange for a higher monthly payment. Try both in the calculator above and compare the "Total interest" figure.
3. Down payment
A larger down payment shrinks the loan amount, lowers the payment, and — at 20% or more — usually removes the need for private mortgage insurance (PMI).
Frequently asked questions
How is a monthly mortgage payment calculated?
Monthly payments use the amortization formula M = P × [r(1+r)ⁿ] ÷ [(1+r)ⁿ − 1], where P is the loan amount, r is the monthly rate and n is the number of payments. This calculator applies exactly that formula.
How much down payment do I need?
Many conventional loans allow 3–5% down, FHA loans typically require 3.5%, and VA/USDA loans can be 0% for eligible borrowers. Putting 20% down lets you avoid PMI, which typically costs 0.3%–1.5% of the loan amount per year.
Is a 15-year or 30-year mortgage better?
A 15-year mortgage means higher monthly payments but a lower rate and dramatically less total interest. A 30-year mortgage keeps payments affordable and flexible. Run both terms above and compare the totals for your numbers.
Does this include taxes and insurance?
No — this estimates principal & interest only. Budget extra for property taxes, homeowners insurance, PMI (if under 20% down) and HOA fees to get your full monthly housing cost.