To calculate your mortgage payment, divide your annual rate by 12 for the monthly rate, then use the loan formula on the amount you borrow to get principal and interest. Your full monthly payment then adds property tax, home insurance, PMI if your down payment is under 20 percent, and any HOA dues.
The Mortgage Payment Formula
The formula looks harder than it is. P is the amount you borrow, r is the monthly interest rate (your annual rate divided by 12) and n is the number of monthly payments. The formula is M equals P times r times one plus r to the power of n, all divided by one plus r to the power of n minus one. This gives the principal and interest part of your payment, usually shortened to P and I.
That P and I figure is only part of what you pay each month. Most lenders collect property tax and home insurance with the mortgage, and add PMI and HOA dues where they apply. The full monthly payment is P and I plus tax plus insurance plus PMI plus HOA. Use the free Mortgage Calculator to work out the full total, with a year-by-year breakdown.
Worked Example: a $400,000 Home
Suppose you buy a home for $400,000 with a 20 percent down payment of $80,000, so you borrow $320,000. The rate is 6.5 percent fixed over 30 years. The monthly rate is 6.5 percent divided by 12, which is about 0.5417 percent, and the number of payments is 360.
| Figure | Value |
|---|---|
| Home price | $400,000 |
| Down payment (20%) | $80,000 |
| Loan amount | $320,000 |
| Interest rate | 6.5% fixed |
| Loan term | 30 years (360 months) |
| Principal and interest | $2,022.62 |
| Property tax | $200 a month |
| Home insurance | $100 a month |
| Total monthly payment | $2,322.62 |
| Total interest over 30 years | $408,142.36 |
So principal and interest come to $2,022.62 a month. With $200 of tax and $100 of insurance, the full payment is $2,322.62 a month. Over 30 years you would pay $408,142.36 in interest — more than the amount you borrowed. That is normal for a long mortgage, and it is why the rate and the term matter so much.
What Else Is in Your Monthly Payment
Property tax is set by your local authority and usually rises slowly over time, so your payment can creep up even on a fixed-rate loan. Home insurance protects the lender as well as you, and the lender will require it. PMI, or private mortgage insurance, applies when your down payment is under 20 percent; it protects the lender, not you, and it usually drops off once you owe 80 percent or less of the home's value. HOA dues apply only if the home is in a managed community, and they pay for shared upkeep.
When you compare homes, compare the full monthly payment, not just the P and I. Two homes with the same price can have very different tax bills, insurance costs and HOA dues.
Your lender usually holds tax and insurance money in an escrow account and pays the bills for you. Each year the lender reviews the account and adjusts your monthly amount if taxes or premiums changed. That is why a fixed-rate mortgage payment can still move a little from year to year, even though the principal and interest part never changes.
15-Year vs 30-Year: the Real Difference
Take the same $320,000 loan at 6.5 percent. Over 30 years the payment is $2,022.62 a month and the total interest is $408,142.36. Over 15 years the payment rises to $2,787.54 a month, but the total interest falls to $181,757.84. The 15-year loan costs $764.92 more each month, yet it saves $226,384.52 in interest and the home is yours 15 years sooner.
That trade-off is the heart of the mortgage decision. A 15-year loan is much cheaper overall, but the higher payment leaves less room in your budget, and lenders will check that you can afford it. A 30-year loan costs far more in interest, but the lower payment is easier to live with. Many buyers split the difference: they take a 30-year loan for the lower required payment, then pay extra towards the principal whenever they can, which cuts interest without locking them into the higher payment.
How to Lower Your Payment
A bigger down payment is the most direct lever: it shrinks the loan, and at 20 percent it also removes PMI. A better interest rate helps almost as much — even half a point less on a $320,000 loan saves about $100 a month. Your credit score, the size of your down payment and the loan type all affect the rate you are offered, so it pays to compare quotes from several lenders.
Buying a less expensive home lowers every part of the payment at once: the loan, the tax and the insurance. And remember that the rate you are quoted is not the rate you keep forever. If rates fall later, refinancing into a new loan at the lower rate can cut the payment, though it comes with its own closing costs.
Frequently Asked Questions
What is the formula for a mortgage payment?
The principal and interest payment equals the loan amount times the monthly rate times one plus the monthly rate to the power of the number of months, divided by one plus the monthly rate to the power of the number of months minus one. Your full monthly payment then adds property tax, insurance, PMI and HOA dues.
How much is the mortgage payment on a $400,000 house?
With 20 percent down, a $320,000 loan at 6.5 percent over 30 years gives principal and interest of $2,022.62 a month. Adding $200 of tax and $100 of insurance brings the full payment to $2,322.62 a month, before any PMI or HOA dues.
Does a 15-year mortgage really save that much interest?
Yes. On a $320,000 loan at 6.5 percent, a 15-year term costs $2,787.54 a month and $181,757.84 in total interest, against $2,022.62 a month and $408,142.36 in interest over 30 years. The saving is $226,384.52, but the monthly payment is $764.92 higher.
What is PMI and when do I pay it?
PMI is private mortgage insurance, and it applies when your down payment is under 20 percent. It protects the lender, not you, and it is added to your monthly payment. It usually drops off once you owe 80 percent or less of the home's value.
Try it yourself: use our free Mortgage Calculator to get your number in seconds — no sign-up needed.