How the monthly payment is worked out
A fixed-rate mortgage is repaid in equal monthly payments. Each payment first covers the interest that built up on your balance that month, and the rest pays down the loan. The formula for that level payment is:
L = loan amount · r = yearly rate ÷ 12 · n = number of monthly payments
Your lender usually collects more than this. Property tax and home insurance are often paid into an escrow account with each payment, and you may also owe private mortgage insurance (PMI) and homeowners association (HOA) fees. Together these are often called PITI: principal, interest, taxes and insurance.
Worked example
You buy a $400,000 home with 20% down, so you borrow $320,000 at 6.5% for 30 years.
- r = 0.065 ÷ 12 = 0.0054167 and n = 30 × 12 = 360
- M = 320,000 × 0.0054167 ÷ (1 − 1.0054167^−360) = $2,022.62 for principal and interest
- Property tax at 1% a year adds $333.33 a month, and $1,500 of yearly insurance adds $125
- Total monthly payment: $2,480.95
In the first month, $1,733.33 of the $2,022.62 is interest and only $289.28 reduces the loan. Over 30 years you pay $408,142.36 in interest, more than the amount you borrowed. Open the amortization schedule above to see how the split changes year by year.
How the amortization schedule works
An amortization schedule lists every payment and splits it into interest and principal. The payment stays the same, but the split changes every month. Interest is charged on what you still owe, and at the start you owe the most, so early payments are mostly interest. As the balance falls, less goes to interest and more to the loan.
Here is a $300,000 loan at 6.5% for 30 years, with a payment of $1,896.20:
| Payment | Interest | Principal | Balance after |
|---|---|---|---|
| 1 | $1,625.00 | $271.20 | $299,728.80 |
| 60 (year 5) | $1,523.20 | $373.01 | $280,832.93 |
| 120 (year 10) | $1,380.41 | $515.80 | $254,328.38 |
| 180 (year 15) | $1,182.95 | $713.25 | $217,677.42 |
| 240 (year 20) | $909.90 | $986.30 | $166,995.85 |
| 300 (year 25) | $532.33 | $1,363.87 | $96,912.49 |
| 360 (year 30) | $10.22 | $1,885.99 | $0 |
The first interest charge is simply $300,000 × 0.065 ÷ 12 = $1,625. After five years you have paid $94,605.18 of interest but only $19,167.07 of the loan. Principal first takes the bigger share at payment 233, more than 19 years in, and the balance drops below half the loan only at payment 257. This is why extra payments early in the loan save the most: each one removes a slice of balance that would otherwise collect interest for decades.
How much does the interest rate change the payment?
Small rate changes add up over 30 years. Monthly principal and interest on a $300,000, 30-year fixed loan:
| Rate | Monthly payment | Total interest over 30 years |
|---|---|---|
| 5.0% | $1,610.46 | $279,767.35 |
| 5.5% | $1,703.37 | $313,212.12 |
| 6.0% | $1,798.65 | $347,514.57 |
| 6.5% | $1,896.20 | $382,633.47 |
| 7.0% | $1,995.91 | $418,526.69 |
| 7.5% | $2,097.64 | $455,151.67 |
Each half-point adds about $93 to $102 a month here. Going from 5% to 7.5% costs $487.18 more each month and $175,384.32 more interest over the life of the loan. Even a quarter-point is worth shopping for.
What goes into a mortgage payment
| Part | What it pays for | Changes over time? |
|---|---|---|
| Principal | Paying down the loan itself | Grows each month |
| Interest | The lender’s charge on your balance | Shrinks each month |
| Property tax | Local tax on the home’s assessed value | When your tax bill changes |
| Home insurance | Cover for the building and your liability | At each renewal |
| PMI | Insurance that protects the lender | Stops at 78% (see below) |
| HOA fees | Shared costs in a condo or planned community | When the association votes |
This calculator keeps tax, insurance and HOA flat, so treat those lines as today’s estimate. Your Loan Estimate and escrow statement show the exact figures.
PMI: when you pay it and when it stops
On a conventional loan, lenders usually require PMI when your down payment is less than 20% of the price. Freddie Mac puts the typical cost at about $30 to $70 a month for every $100,000 borrowed, depending mainly on your credit score and down payment. The calculator charges PMI as a yearly percentage of the original loan.
The Homeowners Protection Act sets three end points, and the calculator applies them:
- Automatic end at 78%. PMI stops on the date your balance is scheduled to reach 78% of the home’s original value, based on the original payment schedule. Extra payments do not move this date.
- Halfway point. If 78% comes later than the middle of the term (month 180 of a 30-year loan), PMI ends at the halfway point.
- Ask at 80%. You can request cancellation in writing once your balance reaches 80%, including through extra payments, if you are current on payments and the home has not lost value.
Example: a $400,000 home with 10% down at 6.5% for 30 years. PMI at 0.5% a year costs $150 a month. It ends automatically after 109 payments, a total of $16,350. Asking to cancel at 80% ends it after 95 payments and saves $2,100. FHA and VA loans have their own mortgage insurance rules, which this calculator does not model.
How much do extra payments save?
Every extra dollar goes straight to principal, so it also stops all the future interest on that dollar. Take a $200,000 loan at 6.5% for 30 years: the payment is $1,264.14 and total interest is $255,088.98. Adding $100 a month clears the loan in 293 payments instead of 360, 5 years and 7 months sooner, and saves $55,945.77 of interest. Our guide on how extra payments shorten your mortgage compares monthly, yearly and one-off extra payments.
Before you prepay, check three things:
- Prepayment penalties. Many mortgages have none, but some do. Your Loan Estimate and loan documents say whether yours does.
- Where the money goes. Ask your servicer to apply extra payments to principal, not to next month’s payment.
- Your safety net. An emergency fund and high-interest debt usually come first. Use the compound interest calculator to compare prepaying with investing the same money.
15-year vs 30-year mortgage
Shorter loans usually come with lower rates, and you pay interest for half as long. On a $320,000 loan:
| 15 years at 5.9% | 30 years at 6.5% | |
|---|---|---|
| Monthly principal and interest | $2,683.08 | $2,022.62 |
| Total interest | $162,955.13 | $408,142.36 |
The 15-year loan costs $660.47 more each month but saves $245,187.23 in interest. The 30-year loan gives you more room in your budget, and you can still pay it off early. Use the 15 vs 30 years switch above to run this with your own rates, or read our 15 vs 30-year mortgage guide for the middle path of paying a 30-year loan like a 15-year one.
How much house can I afford?
Lenders and housing counselors often start with the 28/36 rule: keep your total housing payment at or below about 28% of your gross (before-tax) monthly income, and all your debt payments together, including housing, at or below about 36%. The lower of the two limits is your housing budget. It is a rule of thumb, not a law, and lenders may approve more or less.
Example: you earn $9,000 a month before tax and pay $600 a month on a car loan.
- 28% of $9,000 is $2,520 for housing.
- 36% of $9,000 is $3,240 for all debts; minus the $600 car loan leaves $2,640.
- The lower figure, $2,520, is the budget. If property tax and insurance cost $450 a month, $2,070 is left for principal and interest.
- At 6.5% for 30 years, $2,070 a month repays a loan of about $327,500. With 20% down, that points to a home price of about $409,000.
Our guide on how much house you can afford adds closing costs, PMI and a step-by-step budget.
When does refinancing pay off?
Refinancing replaces your mortgage with a new one, usually at a lower rate. It costs money up front in closing costs, so the key number is how long the monthly saving takes to repay them.
Example: you owe $280,000 with 25 years left at 7%, so principal and interest are $1,978.98 a month. A new 25-year loan at 6% would cost $1,804.04, saving $174.94 a month. With $6,000 of closing costs, break-even is 6,000 ÷ 174.94 = 34.3, so 35 months, just under three years. If you expect to keep the home longer than that, the refinance pays off; if you might sell sooner, it may not.
Watch the term. Refinancing 25 remaining years into a new 30-year loan lowers the payment further but adds five years of interest, so compare total interest too.
Tips for using these results
- Use the interest rate for the payment, and compare lenders using the APR, which includes fees.
- The 28% guideline uses gross income; check what actually reaches your bank with the paycheck calculator.
- Borrowing for something other than a home? The loan calculator handles car and personal loans, including weekly and biweekly payments. For Indian or Pakistani home loans, the EMI calculator shows prepayment options the way banks there present them.
- Results keep full precision. Your lender rounds each payment to the cent, so the final payment can differ by a few cents.