How to Calculate Your Monthly Mortgage Payment

November 7, 2026

Disclaimer: This content is for informational and educational purposes only. It is not financial advice. Mortgage rates, taxes, insurance, and lending rules vary by lender and location, and your actual payment will be set by your loan agreement. Check the figures with your lender before making a decision.

Before you make an offer on a house, you need one number above all others: the monthly payment. It decides whether a home is affordable, how much house you can buy, and how much income will be tied up for the next fifteen or thirty years. For a fixed-rate mortgage it comes from a single formula with three inputs — loan amount, interest rate, and term — and you can work it out by hand. This guide shows the formula, works through a full $300,000 example, explains the extra costs on top of principal and interest, and compares a 30-year loan with a 15-year loan.

What Your Monthly Payment Is Made Of

When a lender quotes a monthly payment, it usually means principal and interest only (P&I). Your real monthly housing cost is usually larger — lenders call it PITI:

• Principal — the part that reduces the amount borrowed. Early on it is the smaller part; it grows as the balance falls.
• Interest — the cost of borrowing, charged on the balance you still owe. Early on it is the larger part; it shrinks as the balance falls.
• Taxes — property tax, usually collected monthly into escrow and paid to the local authority on your behalf.
• Insurance — homeowner's insurance, also usually collected monthly into escrow.

Two more items can apply. PMI (private mortgage insurance) is usually required when the down payment is below 20% of the home's value, typically costing 0.5% to 1.5% of the loan amount a year until you have enough equity to remove it. HOA dues, where they apply, are charged separately. The formula below calculates P&I; afterwards we add the rest to get the full PITI figure.

The Mortgage Payment Formula

Every fixed-rate mortgage uses the same formula, sometimes called the amortisation formula. It produces one fixed monthly payment that, repeated every month, pays all the interest and reduces the balance to exactly zero by the last payment:

M = P × [r(1 + r)^n] / [(1 + r)^n − 1]

Here is what each letter means:

• M — the monthly principal and interest payment, the number you are solving for.
• P — the principal, the amount you actually borrow. That is the home price minus your down payment, not the home price itself.
• r — the monthly interest rate, which is the annual rate divided by 12. A 6.5% annual rate becomes 0.065 / 12 = 0.0054167 per month.
• n — the total number of monthly payments, which is the loan term in years multiplied by 12. A 30-year loan has n = 360; a 15-year loan has n = 180.

The power term (1 + r)^n is just compound growth: the factor by which one dollar grows when interest is added every month for n months. The rest of the formula turns that factor into a level payment.

Worked Example: A $300,000 Loan at 6.5% for 30 Years

Calculate the payment for a $300,000 loan at 6.5% over 30 years, from scratch.

Step 1: Identify the inputs. P = $300,000. The annual rate is 6.5%, and the term is 30 years.

Step 2: Convert the rate to a monthly rate. r = 0.065 / 12 = 0.0054167 per month.

Step 3: Count the payments. n = 30 × 12 = 360 monthly payments.

Step 4: Calculate the growth factor. (1 + r)^n = (1.0054167)^360 = 6.9918.

Step 5: Build the numerator. r × (1 + r)^n = 0.0054167 × 6.9918 = 0.037872.

Step 6: Build the denominator. (1 + r)^n − 1 = 6.9918 − 1 = 5.9918.

Step 7: Divide and multiply by the principal. 0.037872 / 5.9918 = 0.006321, so M = $300,000 × 0.006321 = $1,896.20 per month for principal and interest.

Step 8: Check the total. Over 360 payments you pay $682,633.47 in total. Subtract the $300,000 borrowed, and the interest alone is $382,633.47 — more than the loan itself. That is why the term matters so much, as the comparison below shows.

Where Your First Payments Actually Go

A fixed payment does not mean a fixed split. In the first month almost all of it is interest, charged on the full $300,000 balance. As the balance falls, the interest part falls and the principal part rises, while the total stays at $1,896.20. This slow shift is called amortisation.

After the first year you have paid $22,754.45, but only $3,353.18 has reduced your balance; the other $19,401.27 was interest. That is why a mortgage balance barely moves in the early years — in the final year, almost the whole payment is principal. Ask your lender for an amortisation schedule, which lists this split for every payment.

Adding It Up: The Full Monthly Cost (PITI)

Now add the other costs to the $1,896.20 of principal and interest. Suppose tax is $3,600 a year, insurance $1,800 a year, and PMI 0.8% of the loan a year, because the down payment was below 20%:

The full cost, $2,546.20, is about 34% higher than principal and interest alone — the most common budgeting surprise for first-time buyers. Always compare the full PITI figure, and remember tax and insurance can rise over time even though P&I stays fixed.

30-Year vs 15-Year: What the Shorter Term Really Saves

Take the same $300,000 loan at 6.5%, repaid over 15 years instead of 30: n is now 180, the growth factor is (1.0054167)^180 = 2.6442, and the payment is $2,613.32 per month.

The 15-year loan costs $717.12 more a month, but saves $212,235.49 in interest — more than two-thirds of the 30-year loan's interest — and you own the home fifteen years sooner. The trade-off is flexibility: the higher payment leaves less cushion if income falls. Many buyers take the 30-year loan for the lower required payment and pay extra when they can, which is the most powerful lever of all.

Second Worked Example: A $250,000 Loan at 7% for 30 Years

For a $250,000 loan at 7% over 30 years: r = 0.0058333, n = 360, (1.0058333)^360 = 8.1165, and the payment is $1,663.26 per month. Total paid is $598,772.25, of which $348,772.25 is interest. A smaller loan at a higher rate still costs less per month than the $300,000 loan above — loan amount matters most, then rate, then term. That is why a larger down payment is usually the most effective way to cut a payment.

How Extra Payments Shorten Your Loan

Because interest is charged on the balance you still owe, any extra payment goes straight to principal and cuts the interest on every payment after it. On the $300,000, 6.5%, 30-year loan, adding $200 a month — paying $2,096.20 — pays the loan off in 277 months instead of 360, about 6.9 years sooner, and total interest falls from $382,633.47 to $279,184.67, a saving of $103,448.79. Check with your lender that extra payments are applied to principal, not held as advance payments, and that the loan has no prepayment penalty.

Common Pitfalls

Using the home price instead of the loan amount

The formula needs P, the amount borrowed. If the home costs $375,000 and you put down $75,000, P is $300,000, not $375,000.

Dividing the annual rate by 12 the wrong way

The monthly rate is the annual rate divided by 12 as a decimal: 6.5% is 0.065, so r = 0.0054167. Using 6.5 / 12 = 0.5417 is one hundred times too large and produces a nonsensical payment.

Forgetting taxes, insurance, and PMI

The formula gives principal and interest only. Budgeting on P&I alone understates the real cost by hundreds of dollars. Always add tax, insurance, and PMI before deciding whether a home is affordable.

Assuming the payment never changes

With a fixed-rate mortgage the P&I part never changes, but tax and insurance can rise, so the total can rise. With an adjustable-rate mortgage the P&I part itself is recalculated whenever the rate changes.

Comparing loans by the monthly payment alone

A lower monthly payment from a longer term usually means far more total interest. Compare total interest, not just the monthly figure, before choosing a term.

Frequently Asked Questions

How do I calculate my monthly mortgage payment?

Use M = P × [r(1 + r)^n] / [(1 + r)^n − 1], where P is the loan amount, r is the monthly rate (annual rate / 12), and n is the total number of payments (years × 12). For a $300,000 loan at 6.5% for 30 years, principal and interest is $1,896.20 a month.

What is PITI?

PITI is Principal, Interest, Taxes, and Insurance — your full monthly housing cost. The formula covers principal and interest only; tax, insurance, and PMI (if the down payment was below 20%) are added on top.

How much is the monthly payment on a $300,000 mortgage at 6.5% for 30 years?

$1,896.20 a month for principal and interest — $682,633.47 over 360 payments, of which $382,633.47 is interest. With tax, insurance, and PMI added, the full monthly cost is $2,546.20.

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

It depends on your budget. On a $300,000 loan at 6.5%, a 15-year loan costs $2,613.32 a month instead of $1,896.20, but saves $212,235.49 in interest and pays the home off fifteen years sooner. The 30-year loan has a lower payment and more flexibility.

Does paying extra each month really save that much?

Yes. On the $300,000, 6.5%, 30-year loan, adding $200 a month pays it off in 277 months instead of 360 and saves $103,448.79 in interest. Confirm extra payments go to principal and there is no prepayment penalty.