How is a mortgage payment calculated?

Monthly payment M = P[r(1+r)^n]/[(1+r)^n-1], where P = loan amount, r = monthly interest rate (annual rate / 12), n = total number of payments (loan term in years × 12).

What is a good mortgage interest rate?

Mortgage rates vary by country, loan type, credit score and market conditions. In the US in 2025, 30-year fixed rates range from 6–7%. Check current rates from multiple lenders for the best offer.

What is the difference between fixed-rate and adjustable-rate mortgages?

Fixed-rate mortgages have the same interest rate for the entire loan term. Adjustable-rate mortgages (ARMs) have a fixed rate for an initial period (e.g., 5 years), then adjust periodically based on market rates. ARMs start lower but carry rate risk.

How much down payment should I make?

20% down avoids PMI (Private Mortgage Insurance). Less than 20% typically requires PMI, costing 0.5–1.5% of the loan amount annually. FHA loans allow 3.5% down with mortgage insurance premiums. Balance upfront cash vs. monthly costs.

What is PMI and when does it go away?

PMI protects lenders if you default. It costs 0.5–1.5% of the loan amount annually. PMI is automatically removed when you reach 22% equity. You can request removal at 20% equity with a good payment history.

Should I pay extra on my mortgage?

Extra payments reduce principal faster and save interest. For a 6% mortgage, every $1 extra saves ~$1.80 in interest over the loan term. Consider: emergency fund first, higher-interest debt second, then mortgage prepayment.

What are closing costs?

Closing costs are fees paid at loan closing, typically 2–5% of the loan amount. They include: origination fees, appraisal, title insurance, attorney fees, recording fees, and prepaid items (taxes, insurance). Budget $4,000–10,000 on a $200,000 loan.

Mortgage Calculator – Monthly Payment & Amortization

Loan Details

Home Price ($)

Down Payment ($)

Annual Interest Rate (%)

Loan Term (Years)

Annual Property Tax ($)Optional – included in monthly total

Annual Home Insurance ($)Optional – included in monthly total

Monthly Payment (P+I)

—

Total with tax & insurance: —

Loan Amount

—

Total Interest

—

Total Cost

—

Down Payment %

—

Payment Breakdown

Principal

Interest

Tax & Insurance

Amortization Schedule

Year	Principal	Interest	Balance

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// The Formula

M = P × r(1+r)ⁿ / (1+r)ⁿ − 1

Monthly payment derived from principal, monthly rate, and total payment count

M

Monthly Payment

Fixed payment per month covering principal and interest

P

Principal

Loan amount = home price minus down payment

r

Monthly Rate

Annual interest rate divided by 12

n

Payments

Total months = loan term in years × 12

Know Before You Sign

The Number That Changes Everything

Your monthly repayment determines your financial lifestyle for decades. A 0.5% rate difference on a $400k mortgage saves over $40,000 over 30 years. A 20% down payment avoids PMI — typically 0.5–1% of the loan annually. Run the numbers before the bank does.

// How it works

Understanding Mortgage Amortization

Amortization is the process of paying off a debt through fixed, scheduled payments. While each payment stays the same, what changes is the split between principal and interest. In month 1 of a 30-year mortgage, roughly 70–80% of your payment goes to interest. By year 20, that ratio has flipped.

This is why making extra principal payments early is so powerful — each dollar reduces the balance on which future interest is calculated, compressing the amortization curve dramatically.

Overpayment insight: On a $320k loan at 6.5%, paying an extra $200/month reduces the 30-year term by roughly 5.5 years and saves over $75,000 in total interest.

// Key decisions

15-Year vs. 30-Year Mortgage

30-Year Mortgage — Lower Monthly Payment

On $320k at 6.5%: ~$2,023/month P+I. More cash flow flexibility. Best when income is variable or you have other high-priority investments. Total interest over term: ~$408k.

15-Year Mortgage — Lower Total Cost

On $320k at 6%: ~$2,703/month P+I. Builds equity twice as fast. Total interest over term: ~$167k — roughly $241k less than the 30-year. Best if you can comfortably afford the higher payment.

PMI — When It Applies and How to Remove It

Private Mortgage Insurance is required when your down payment is below 20%. PMI costs 0.5–1% of the loan annually. Once you reach 20% equity (via payments or appreciation), you can request removal under the Homeowners Protection Act.

// Common Questions

Frequently Asked Questions

Monthly payment M = P[r(1+r)^n]/[(1+r)^n−1], where P = loan amount, r = monthly rate (annual ÷ 12), n = total payments (years × 12). Early payments are mostly interest; later payments are mostly principal — this is amortization.

The process of paying off a loan through regular scheduled payments where each covers interest owed and reduces the principal. Early payments are mostly interest; later payments are mostly principal. The amortization schedule shows this breakdown year by year.

A 15-year mortgage has higher monthly payments but dramatically less total interest — often $150k–$250k less on a typical loan. A 30-year offers lower monthly payments and more cash flow. Use this calculator to run both scenarios with your real numbers.

Private Mortgage Insurance protects the lender when your down payment is below 20%. PMI costs 0.5–1% of the loan annually. Once you reach 20% equity through payments or home appreciation, you can request PMI removal from your lender.

US conventional loans: 3–5% minimum, 20% to avoid PMI. FHA loans: 3.5% with a 580+ credit score. UK: 5–10% minimum; 20–25% for best rates. Larger down payments reduce LTV, lower your rate, and reduce monthly payments.

A fixed rate locks in your payment for the entire loan term (or a set period — 2, 5, 10 years in the UK). A variable/tracker rate moves with the base rate — payments can rise or fall. Fixed rates offer certainty; variable rates can save money when base rates fall.

Each overpayment reduces principal immediately. On a $320k loan at 6.5%, overpaying $200/month can cut the term by ~5.5 years and save $75k+ in interest. Most US lenders allow unlimited overpayments; UK lenders typically allow 10% of balance per year.

Fixed-rate mortgages are unaffected until the fixed term ends. Variable/tracker rates rise immediately with base rate increases. If you're on a fixed deal, use the period to build savings, overpay where allowed, and prepare for the possible higher rate at remortgage.

// Methodology & References

Formula & Calculation Method

Standard Fixed-Rate Mortgage Payment

M = P · [r(1+r)^n] / [(1+r)^n − 1]

M — Monthly payment
P — Loan principal (home price − down payment)
r — Monthly interest rate (annual rate ÷ 12)
n — Total number of payments (years × 12)

Source: Standard amortization formula (Federal Reserve / CFPB)

Total Interest Paid

Total Interest = (M × n) − P

M — Monthly payment
n — Total months
P — Loan principal

Loan-to-Value (LTV)

LTV = Loan Amount / Property Value × 100%

Authoritative Sources & Standards

CFPB: TRID (TILA-RESPA Integrated Disclosure) rules require lenders to provide standardized Loan Estimate and Closing Disclosure forms within 3 business days of application. → CFPB
FHA: FHA loans require 3.5% minimum down payment with FICO ≥ 580, and 10% with FICO 500–579. MIP (Mortgage Insurance Premium) is mandatory for the loan's life if down payment <10%. → FHA
VA: VA loans for eligible veterans require 0% down payment, no PMI, and have funding fees of 1.25–3.3% depending on service and down payment. → VA

Expert Insights & Research

On a $400,000 mortgage at 7% over 30 years, total interest paid ($558,036) exceeds the principal by 40%. Reducing the term to 15 years cuts total interest by ~60% while raising monthly payments by ~50%.

— Freddie Mac Primary Mortgage Market Survey 2024 (2024)

A 1% interest rate difference on a $400,000 30-year mortgage equals ~$83,000 in additional lifetime interest. Shopping multiple lenders saves an average of $1,500/year (CFPB).

— CFPB Mortgage Shopping Study (2023)

// Explore More

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