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How to use this calculator#
- Enter the amount you're borrowingThis is the purchase price minus your deposit, not the price of the house. On a $375,000 home with 20% down you would enter $300,000.
- Add the interest rateUse the rate you have been quoted, not the APR. APR bundles fees into a single percentage and will overstate your monthly payment here.
- Set the term in years30 years is the most common in the US, 25 in the UK. Try 15 as well — the monthly cost rises sharply but the total interest roughly halves.
- Read the total, not just the monthlyThe monthly payment tells you whether you can afford it. Total interest tells you what the loan actually costs, and it is the number worth negotiating down.
The formula#
Standard amortizing payment formula
M = P × [ r(1 + r)ⁿ ] ÷ [ (1 + r)ⁿ − 1 ]
- M
- Monthly payment covering principal and interest
- P
- Principal — the amount borrowed
- r
- Monthly interest rate, i.e. the annual rate divided by 12
- n
- Total number of monthly payments, i.e. years × 12
The rate must be converted to a monthly decimal before use: 6.5% annual becomes 0.065 ÷ 12 = 0.00541667. Using the annual rate directly is the single most common error people make working this by hand.
How your mortgage payment is calculated#
A fixed-rate mortgage is repaid in equal monthly instalments over the loan term. Each payment covers the interest due that month plus a portion of the principal, so early payments are mostly interest and later payments are mostly principal.
The formula is M = P · r · (1 + r)^n / ((1 + r)^n − 1), where P is the loan amount, r is the monthly interest rate (annual rate ÷ 12) and n is the number of monthly payments (years × 12).
Tips to lower your payment#
A larger down payment reduces the principal and therefore the monthly payment. A shorter term raises the monthly payment but dramatically cuts the total interest you pay.
Even a small reduction in your interest rate can save thousands over the life of the loan — always compare offers from multiple lenders.
Worked examples#
A standard 30-year loan
Borrowing $300,000 at 6.5% over 30 years.
- Monthly rate r = 0.065 ÷ 12 = 0.00541667
- Number of payments n = 30 × 12 = 360
- (1 + r)ⁿ = 1.00541667³⁶⁰ = 6.99179
- M = 300,000 × (0.00541667 × 6.99179) ÷ (6.99179 − 1)
- M = 300,000 × 0.0378722 ÷ 5.99179 = 1,896.20
$1,896.20 a month — $682,633 repaid in total, of which $382,633 is interest.
What one percentage point actually costs
The same $300,000 over 30 years, but at 7.5% instead of 6.5%.
- At 7.5%: r = 0.00625, and 1.00625³⁶⁰ = 9.42129
- M = 300,000 × (0.00625 × 9.42129) ÷ 8.42129 = 2,097.64
- Difference per month = 2,097.64 − 1,896.20 = 201.44
- Difference over the full term = 201.44 × 360 = 72,518
One extra percentage point adds $201 a month and about $72,500 over the life of the loan — which is why shopping the rate matters more than almost anything else.
Reference tables#
| Rate | 15-year term | 20-year term | 30-year term |
|---|---|---|---|
| 4.0% | $739.69 | $605.98 | $477.42 |
| 5.0% | $790.79 | $659.96 | $536.82 |
| 6.0% | $843.86 | $716.43 | $599.55 |
| 6.5% | $871.11 | $745.57 | $632.07 |
| 7.0% | $898.83 | $775.30 | $665.30 |
| 8.0% | $955.65 | $836.44 | $733.76 |
Example: a $250,000 loan at 6% over 30 years is 2.5 × $599.55 = $1,498.88 a month.
| Term | Monthly payment | Total repaid | Total interest |
|---|---|---|---|
| 10 years | $3,406.47 | $408,776 | $108,776 |
| 15 years | $2,613.32 | $470,398 | $170,398 |
| 20 years | $2,236.56 | $536,774 | $236,774 |
| 30 years | $1,896.20 | $682,633 | $382,633 |
Halving the term from 30 years to 15 raises the monthly payment by 38% but cuts total interest by 55%.
Common mistakes#
- Budgeting from the principal-and-interest figure aloneProperty taxes, homeowners insurance, HOA dues and — below 20% equity — mortgage insurance are all charged on top. In much of the US these add 25–40% to the monthly outlay, so a $1,896 payment can mean $2,500 leaving your account.
- Entering the APR instead of the interest rateAPR folds origination fees and points into one annualised number so borrowers can compare offers. Put it in a payment formula and you will overstate the monthly cost, because you are charging fees you already paid at closing across the whole term.
- Assuming a lower rate is always the cheaper dealRates are often bought down with points paid upfront. A quarter-point rate cut that costs $6,000 at closing takes years to break even, so compare the total cost over how long you actually expect to keep the loan, not over the full 30 years.
- Treating the amortization split as fixedEarly payments are overwhelmingly interest. On this 30-year example the loan does not cross the point where more principal than interest is being repaid until around year 20, which is why overpaying early is disproportionately effective.
Frequently asked questions#
Does this include taxes and insurance?
This calculator shows principal and interest (P&I). Property taxes, home insurance and any HOA fees are additional and vary by location.
What is amortization?
Amortization is the schedule of how each payment is split between interest and principal over the life of the loan, gradually reducing the balance to zero.
How can I pay off my mortgage faster?
Making extra principal payments, switching to a shorter term, or paying bi-weekly instead of monthly all reduce the total interest and payoff time.
Key terms#
- Amortization
- The schedule that splits each equal payment between interest and principal, shifting steadily toward principal until the balance reaches zero.
- APR (annual percentage rate)
- The interest rate plus lender fees expressed as one yearly percentage. Useful for comparing offers, wrong for calculating a payment.
- Escrow
- An account the lender uses to collect and pay your property taxes and insurance alongside the loan payment. It inflates the monthly figure but is not part of principal and interest.
- LTV (loan-to-value)
- The loan as a percentage of the property's value. Borrowing $300,000 against a $375,000 home is 80% LTV. Lower LTV generally unlocks better rates.
- PMI (private mortgage insurance)
- Insurance protecting the lender, typically required below 20% equity, usually 0.5–1.5% of the loan a year. It can often be cancelled once you reach 20%.
- Points
- Upfront fees paid to reduce the interest rate. One point is 1% of the loan amount and usually cuts the rate by roughly 0.25%.
Sources#
- What is a mortgage? — Consumer Financial Protection Bureau
- Primary Mortgage Market Survey (weekly average rates) — Freddie Mac
- What is private mortgage insurance? — Consumer Financial Protection Bureau
Figures last checked .
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