Use our comprehensive **calculate mortgage payment** tool to accurately estimate your monthly housing cost. Understanding this figure is the first step toward smart financial planning and achieving homeownership.
Calculate Monthly Mortgage Payment
Mortgage Payment Formula
The standard fixed-rate mortgage payment calculation uses the following formula:
M = P [ i(1 + i)^n / ((1 + i)^n - 1) ]
Where:
M = Monthly Payment
P = Principal Loan Amount
i = Monthly Interest Rate (Annual Rate / 12)
n = Total Number of Payments (Loan Term in Years * 12)
Formula Source: Investopedia – Calculating Your Mortgage Payment, Bankrate – Mortgage Payment Math
Variables Explained
- Principal Loan Amount: The total amount of money you are borrowing from the lender.
- Annual Interest Rate: The yearly cost of borrowing money, expressed as a percentage. This is typically compounded monthly.
- Loan Term (Years): The duration over which the loan will be repaid, usually 15 or 30 years.
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What is a Mortgage Payment?
A mortgage payment is the recurring amount, typically paid monthly, that a borrower remits to a lender to repay a home loan. For a standard fixed-rate mortgage, this payment remains constant for the life of the loan. Critically, each payment is composed of two main elements: the repayment of the principal (the actual amount borrowed) and the interest (the cost of borrowing the money).
During the early years of the loan, a majority of the payment goes toward interest. This slowly shifts over time, a process known as amortization, such that by the end of the term, most of the payment is allocated to the principal, ultimately resulting in the full ownership of the home. Property taxes and homeowner’s insurance (often referred to as PITI: Principal, Interest, Taxes, Insurance) are often bundled into the total monthly payment, though this calculator focuses only on the Principal and Interest (P&I) portion.
How to Calculate Mortgage Payment (Example)
- Define Variables: Assume a Principal (P) of $200,000, an Annual Interest Rate (r) of 5.0%, and a Loan Term (Y) of 30 years.
- Calculate Monthly Rate (i): Divide the annual rate by 12 and 100: $i = 0.05 / 12 = 0.004167$.
- Calculate Total Payments (n): Multiply the term by 12: $n = 30 \times 12 = 360$ payments.
- Apply the Formula: Substitute the values into the formula: $$ M = 200,000 \times [ 0.004167 \times (1 + 0.004167)^{360} / ((1 + 0.004167)^{360} – 1) ] $$
- Solve: The resulting Monthly Payment (M) is approximately $1,073.64.
Frequently Asked Questions (FAQ)
- How much of my payment goes to principal vs. interest?
- In the first few years, the majority of your payment covers the interest accrued. As the principal balance decreases, the interest portion shrinks, and more of your fixed payment goes toward reducing the principal.
- Does this calculator include property taxes or insurance?
- No. This calculator only computes the Principal and Interest (P&I) portion of your payment. Taxes, insurance, and HOA fees must be added separately to find your total housing expense (PITI).
- What is the best loan term (15-year vs. 30-year)?
- A 15-year loan has a higher monthly payment but a significantly lower total interest cost over the life of the loan. A 30-year loan offers lower monthly payments but results in paying much more interest overall.
- How does a higher interest rate affect my payment?
- A higher interest rate exponentially increases the monthly payment. Even a small increase (e.g., from 6.0% to 6.5%) can add dozens or hundreds of dollars to your required payment.