How to Calculate Your Mortgage Payment
Your mortgage payment determines how much house you can afford and impacts your finances for decades. Understanding exactly how it's calculated — and what levers you can pull — puts you in control of one of the largest financial decisions of your life.
The Mortgage Payment Formula
Monthly mortgage payments use the standard loan amortization formula:
Where: M = Monthly payment | P = Principal (loan amount) | r = Monthly interest rate (annual rate ÷ 12) | n = Total number of payments (years × 12)
Worked Example
$300,000 loan at 6.5% for 30 years
- P = $300,000
- r = 6.5% ÷ 12 = 0.5417% = 0.005417
- n = 30 × 12 = 360 payments
- M = $300,000 × [0.005417 × (1.005417)^360] ÷ [(1.005417)^360 – 1]
- Monthly payment = $1,896.20
Over 30 years you'd pay: $1,896.20 × 360 = $682,632 — that's $382,632 in interest on a $300,000 loan!
What's Included in a Mortgage Payment (PITI)
Your actual monthly payment is often higher than the principal + interest because lenders collect escrow for:
- P — Principal (reduces loan balance)
- I — Interest (lender profit)
- T — Taxes (property taxes, paid via escrow)
- I — Insurance (homeowners + PMI if LTV > 80%)
For a $300K loan at 6.5%, typical PITI might be $2,300–$2,600/month depending on your location and insurance costs.
How to Save Thousands: Extra Payments
Paying even $100–$200/month extra can save enormous amounts in interest:
| Extra Monthly Payment | Interest Saved | Loan Paid Off Early |
|---|---|---|
| $0 (baseline) | — | 30 years |
| $100/month extra | ~$38,000 | ~4 years early |
| $200/month extra | ~$65,000 | ~6 years early |
| $500/month extra | ~$124,000 | ~11 years early |
(Based on $300K loan at 6.5% over 30 years)
Factors That Affect Your Rate
- Credit score: 760+ gets best rates. Each 20-point drop can increase your rate by 0.25–0.5%.
- Down payment: 20%+ avoids PMI. Larger down = lower rate.
- Loan type: 15-year loans have lower rates than 30-year but higher monthly payments.
- Loan size: Jumbo loans (above $766,550 in 2024) have slightly higher rates.
- Market conditions: The Fed's rate decisions and bond market determine the baseline.