Mortgage Calculator

How Mortgage Payments Are Calculated

A mortgage is an amortizing loan, meaning each fixed monthly payment is engineered to pay down both interest and principal simultaneously over the loan term. The math ensures that after making all scheduled payments, your balance is exactly zero — not a dollar more, not a dollar less.

What changes over the life of the loan is the split between interest and principal within each payment. In the early months, the outstanding balance is highest, so interest charges are at their peak. As you make payments and the balance falls, less interest accrues each month, and a larger portion of each payment reduces the principal. By the final years of a 30-year mortgage, the vast majority of each payment is principal. This front-loading of interest is why the total cost of a 30-year mortgage is so much higher than a 15-year loan at the same rate — you carry a larger balance for longer.

A concrete example: on a $350,000 mortgage at 7% for 30 years, your first monthly payment of $2,329 breaks down as approximately $2,042 in interest and only $287 in principal. By payment 180 (year 15), that same payment is split roughly $1,500 interest and $829 principal. By payment 300, you're paying more principal than interest for the first time. The Consumer Financial Protection Bureau provides interactive tools that show this amortization in detail and explain how each loan feature affects total cost.

The Mortgage Payment Formula

• M = monthly payment (principal + interest only)
• P = loan principal (home price minus down payment)
• r = monthly interest rate (annual rate ÷ 12)
• n = total number of monthly payments (years × 12)

For a $400,000 loan at 7% for 30 years: r = 0.07/12 ≈ 0.005833, n = 360. The monthly principal and interest payment works out to $2,661. Over the loan's life, you'll pay back the original $400,000 plus approximately $558,000 in interest — meaning the true cost of the home is nearly $960,000 by the time you make your last payment.

Loan Term Comparison: Total Cost Over Time

The most impactful decision most borrowers make — beyond price and down payment — is the loan term. The numbers below assume a $350,000 loan, current rate spreads between 15-year and 30-year conventional mortgages:

The 15-year loan costs about $290,000 less in total interest — a difference that dwarfs almost any other financial decision in a homebuyer's life. But the monthly payment is $722 higher than the 30-year option. Only you can weigh the trade-off between cash flow flexibility and total loan cost. Actual rates vary; check Freddie Mac's weekly survey for current market rates.

The Hidden Costs: PMI, Taxes, and Insurance

The principal-and-interest figure from this calculator is only part of what you'll pay each month. There are three additional costs to plan for:

Property taxesare assessed by local governments and vary enormously by state and county — from under 0.3% of assessed value annually in Hawaii and Alabama to over 2% in New Jersey and Illinois. On a $400,000 home in a 1.2% tax rate area, that's $4,800/year ($400/month) added to your housing cost. Most lenders escrow taxes and collect one-twelfth with each mortgage payment.

Homeowner's insurance averages about $1,400–$2,000 per year nationally, though rates vary significantly based on location, construction type, claims history, and coverage amount. Coastal and storm-prone areas can see premiums that are multiples of the national average.

Private Mortgage Insurance (PMI) is required on conventional loans when the down payment is less than 20%. PMI rates typically run 0.5%–1.5% of the original loan amount annually. On a $400,000 loan, that is $2,000–$6,000 per year ($167–$500/month) until your equity reaches 20%. Under the Homeowners Protection Act, lenders must automatically cancel PMI when the loan balance reaches 78% of the original purchase price — but you can request cancellation earlier once you have 20% equity, potentially saving months of PMI payments.

Frequently Asked Questions

What does a monthly mortgage payment include?

A standard mortgage payment has two core components: principal (the portion that reduces your loan balance) and interest (the cost charged on the remaining balance). However, most lenders roll two additional costs into a single monthly bill through an escrow account: property taxes and homeowner's insurance. This bundled payment is often called PITI — principal, interest, taxes, and insurance. If your down payment is less than 20%, your lender will also require Private Mortgage Insurance (PMI), which is added on top. This calculator computes principal and interest only. To estimate your full monthly housing cost, add your estimated annual property taxes and homeowner's insurance, then divide by 12.

Is a 15-year or 30-year mortgage better?

The right loan term depends on your financial situation and priorities, not a universal rule. A 15-year mortgage typically carries an interest rate 0.5%–0.75% lower than a 30-year loan, and you pay off the balance in half the time — which means dramatically less total interest paid. For example, a $400,000 loan at 7% costs approximately $538,000 in total interest over 30 years, but only about $231,000 over 15 years. The catch is the monthly payment on a 15-year loan is roughly 40%–50% higher, which squeezes cash flow. A 30-year mortgage frees up monthly cash you can redirect to higher-returning investments — and if market returns exceed your mortgage rate, you may come out ahead financially. Many financial planners suggest the 30-year loan with voluntary extra principal payments, which gives you flexibility without sacrificing debt paydown.

How much house can I afford?

The most widely used guideline is the 28/36 rule: your monthly housing costs (principal, interest, taxes, and insurance) should not exceed 28% of your gross monthly income, and your total debt payments (housing plus car loans, student loans, credit cards) should not exceed 36%. Some lenders apply a more lenient 31/43 ratio. If you earn $7,000/month gross, the 28% housing threshold puts your maximum PITI at about $1,960. At current interest rates, that payment roughly corresponds to a home purchase price in the $300,000–$350,000 range depending on down payment and taxes. The Consumer Financial Protection Bureau provides resources and tools for first-time buyers to understand affordability before approaching lenders.

What is the effect of a larger down payment?

A larger down payment reduces the loan principal, which lowers your monthly payment and the total interest paid over the loan's life. More importantly, reaching 20% down eliminates Private Mortgage Insurance (PMI), which typically costs 0.5%–1.5% of the loan amount per year — on a $400,000 loan, that is $2,000–$6,000 annually that disappears from your payment the moment your equity hits 20%. However, tying up a large cash sum in a down payment has an opportunity cost: that money isn't invested elsewhere. Whether it makes more financial sense to put down 20% or invest the difference depends on your mortgage rate versus your expected investment return.

How does making extra principal payments affect my mortgage?

Extra principal payments are one of the most powerful tools available to borrowers, because every dollar of extra principal reduces the balance on which future interest is calculated. On a $400,000 30-year mortgage at 7%, the scheduled payment is about $2,661/month. Adding just $200/month in extra principal saves roughly $67,000 in total interest and shortens the loan by about 4 years. The earlier in the loan you make extra payments, the greater the impact — because interest accrues on a higher balance in the early years. Some mortgages have prepayment penalties; check your loan documents before making large lump-sum payments.

What factors determine my mortgage interest rate?

Mortgage rates are set by lenders based on their cost of capital (influenced heavily by the Federal Reserve's benchmark rate and the 10-year Treasury yield), plus a margin that reflects credit risk. The factors you control that most affect your specific rate: credit score (higher is better — scores above 760 typically qualify for the best rates), loan-to-value ratio (lower is better — more equity means less risk for the lender), loan type (conventional, FHA, VA, and USDA loans each have different rate structures), loan term (15-year loans price lower than 30-year), and points paid at closing (you can buy your rate down by paying discount points upfront). Freddie Mac publishes a weekly Primary Mortgage Market Survey tracking average 30-year fixed rates, which is a useful benchmark for evaluating quotes from lenders.

Should I pay points to lower my mortgage rate?

Mortgage points (also called discount points) let you pay upfront to reduce your interest rate — typically 1 point costs 1% of the loan amount and reduces the rate by 0.25%. Whether this makes sense depends on your break-even horizon. Divide the upfront cost of the points by the monthly savings to find how many months it takes to recoup. If you plan to stay in the home and keep the loan for longer than the break-even period, points are financially beneficial. If you might refinance, sell, or pay off early, you may not break even. On a $400,000 loan, 1 point ($4,000) saving $67/month breaks even in about 60 months — worthwhile if you keep the loan 5+ years.