How to Calculate Your Mortgage Payment
Buying a home is the largest financial decision most people make. Before you fall in love with a listing, you need to know what the monthly payment will actually be, how much of it goes to interest versus principal in the early years, and whether the total cost of the loan fits comfortably within your budget. This guide covers the math behind mortgage payments and the key factors that determine affordability.
The mortgage payment formula
A standard fixed-rate mortgage uses the same formula as an amortizing loan:
M = P × [r(1+r)n] / [(1+r)n - 1]
Where:
- M = Monthly payment
- P = Principal (loan amount = purchase price minus down payment)
- r = Monthly interest rate = annual rate / 12 / 100
- n = Total number of payments = years × 12
Worked example
Home price: $350,000. Down payment: $70,000 (20%). Loan: $280,000. Interest rate: 7.0% annual. Term: 30 years (360 months).
- r = 7.0 / 12 / 100 = 0.005833
- n = 360
- M = 280,000 × [0.005833 × (1.005833)360] / [(1.005833)360 - 1]
- M = 280,000 × [0.005833 × 8.116] / [8.116 - 1]
- M = 280,000 × 0.04734 / 7.116
- M ≈ $1,863.75 per month
Over 30 years you will make 360 payments totaling $670,950. The total interest paid is $670,950 - $280,000 = $390,950. This is why mortgage rate matters enormously, and why extra principal payments early in the loan save disproportionate amounts of interest.
How interest rate changes your payment
On a $280,000 30-year mortgage, a 1% change in rate shifts the monthly payment by roughly $180 and the total interest by over $60,000:
| Interest rate | Monthly payment | Total interest |
|---|---|---|
| 5.5% | $1,589 | $292,000 |
| 6.5% | $1,770 | $357,000 |
| 7.0% | $1,864 | $391,000 |
| 7.5% | $1,958 | $425,000 |
| 8.0% | $2,054 | $460,000 |
15-year vs. 30-year mortgage
A 15-year mortgage has a significantly higher monthly payment but far less total interest. On the same $280,000 at 6.5%:
- 30-year: $1,770/month | Total interest: $357,000
- 15-year: $2,440/month | Total interest: $159,000
The 15-year saves $198,000 in interest at the cost of $670 more per month. The right choice depends on your cash flow. If the extra $670 would go toward investments earning more than your mortgage rate, the 30-year can make mathematical sense. If not, the 15-year is typically the better financial decision.
What is not included in the payment formula
The formula above calculates only principal and interest (P&I). Your actual monthly payment to the lender often includes:
- Property tax: Typically 0.5 to 2.5% of home value per year, collected monthly into escrow
- Homeowner's insurance: Usually $1,000 to $2,500 per year, also escrowed
- PMI (Private Mortgage Insurance): Required when the down payment is less than 20%. Typically 0.5 to 1.5% of the loan per year
- HOA fees: If the property is in a homeowner's association
Adding these "PITI" components (Principal, Interest, Tax, Insurance) to your calculation gives you the true monthly cost.
The 28/36 affordability rule
A widely used guideline: your monthly housing payment (PITI) should not exceed 28% of gross monthly income, and your total debt payments (housing plus car loans, student loans, credit cards) should not exceed 36%.
On a gross income of $7,500/month: maximum housing payment = $2,100; maximum total debt = $2,700. Staying within these limits provides a buffer for savings, emergencies, and lifestyle costs.
Frequently asked questions
How is a monthly mortgage payment calculated?
The formula is M = P x (r(1+r)^n) / ((1+r)^n - 1), where P is the loan principal, r is the monthly interest rate, and n is the number of monthly payments. A $280,000 loan at 7% over 30 years produces a monthly P&I payment of approximately $1,864.
How much house can I afford?
The 28/36 rule: your monthly housing payment should not exceed 28% of your gross monthly income, and total debt payments should not exceed 36%. On $6,000 monthly gross income, that means a maximum housing payment of $1,680 per month.
What is PMI and when do I need it?
PMI is Private Mortgage Insurance. Lenders require it when your down payment is less than 20% of the home price. It typically costs 0.5 to 1.5% of the loan amount per year added to your monthly payment. Once you reach 20% equity, you can request removal.
Calculate your mortgage payment and see the full amortization.
Open Mortgage Calculator →