How to Calculate Your Mortgage Payment (Step-by-Step)

You can Google "mortgage payment formula" and get a wall of Greek letters. Here's what that formula actually means in plain English, plus a worked example you can follow with a calculator app.

The Short Version

Your monthly mortgage payment depends on three things: how much you borrowed, what interest rate you're paying, and how many months you have to pay it back. That's it. Everything else (taxes, insurance, PMI) gets added on top.

What's Included in Your Monthly Payment

Most people hear "mortgage payment" and think it's one number. It's actually four, bundled together under the acronym PITI:

Principal — The chunk that actually reduces what you owe. Early in your loan this is tiny. On a $300,000 loan at 6.5%, your first payment puts only $271 toward principal. The rest goes to interest.

Interest — What the bank charges you for lending the money. In month one of that same $300,000 loan, you'll pay $1,625 in interest. That's 86% of your payment going straight to the lender's pocket.

Taxes — Property taxes get split into twelve monthly pieces and held in escrow. Your lender pays the county for you when the bill comes due. Rates vary wildly — from 0.29% in Hawaii to 2.23% in New Jersey.

Insurance — Homeowner's insurance covers fire, theft, liability. If you put less than 20% down, you'll also pay PMI (private mortgage insurance), which protects the lender if you default. PMI typically costs 0.5-1% of the loan per year.

The Formula (Simplified)

The standard amortization formula looks intimidating, but here's what it's doing:

M = P × [r(1+r)^n] / [(1+r)^n - 1]

Where:

• M = monthly payment (principal & interest only)
• P = loan amount (principal)
• r = monthly interest rate (annual rate divided by 12)
• n = total number of payments (years × 12)

The formula figures out the fixed monthly amount that will pay off your entire loan balance plus all accrued interest over exactly n months. Every payment is the same size, but the split between principal and interest shifts over time.

Step-by-Step Example: $300,000 Loan at 6.5%

Let's walk through it:

Step 1: Convert the rate. Annual rate: 6.5% → Monthly rate: 6.5% / 12 = 0.5417% → As a decimal: 0.005417

Step 2: Count the payments. 30 years × 12 months = 360 payments

Step 3: Plug in the numbers. M = $300,000 × [0.005417 × (1.005417)^360] / [(1.005417)^360 - 1]

Step 4: Solve. (1.005417)^360 = 6.9913 Numerator: 0.005417 × 6.9913 = 0.03788 Denominator: 6.9913 - 1 = 5.9913 M = $300,000 × (0.03788 / 5.9913) = $300,000 × 0.006321 M = $1,896 per month (P&I only)

Step 5: Add the rest. Property taxes (1% of $375,000 home): $313/month Homeowner's insurance: $125/month PMI (if applicable): $125/month Total PITI: $2,334-$2,459/month

Why the First Years Feel So Slow

Look at that first payment breakdown again: $271 to principal, $1,625 to interest. You're barely denting the balance. This is amortization at work — the loan is front-loaded with interest.

By month 180 (halfway through a 30-year loan), the split is roughly 50/50. By the last few years, nearly everything goes to principal. It's a patience game. Knowing this helps you understand why extra payments early on have such a massive impact — every extra dollar skips the interest line entirely and goes straight to reducing your balance.

A Faster Way

Or you can skip the math entirely and use our free calculator. Punch in your numbers and get your payment instantly, plus a full amortization schedule showing every single month for 30 years.

The calculator also lets you add extra payments to see how they change your payoff date, compare different rates side by side, and include property taxes and insurance for the full PITI picture.

Common Mistakes

Confusing interest rate with APR. Your interest rate is what goes into the formula. APR includes fees and points, so it's always slightly higher. Use interest rate for monthly payment math, APR for comparing loan offers.

Forgetting taxes and insurance. A $1,896 P&I payment becomes $2,334+ once you add PITI. Budget for the full number.

Ignoring PMI. If you're putting less than 20% down, PMI adds $100-300/month on a typical loan. The good news: it drops off once you hit 20% equity.

Using the home price instead of loan amount. If you're buying a $375,000 home with 20% down ($75,000), your loan amount is $300,000. That's the number that goes into the formula.