Mortgage · 6 min read
How to Calculate Your Mortgage Payment (Step-by-Step)
Learn the mortgage formula, what affects your monthly payment, and how to use a mortgage calculator to compare loan scenarios.
The basic mortgage formula
Your monthly mortgage payment is determined by three main factors: the loan amount (principal), the interest rate, and the loan term. The standard formula is M = P[r(1+r)^n] / [(1+r)^n - 1], where P is the principal, r is the monthly interest rate, and n is the number of payments. Most people use a mortgage calculator instead of doing this math by hand.
What PITI means
Lenders often talk about PITI: Principal, Interest, Taxes, and Insurance. The mortgage formula only covers principal and interest. Property taxes and homeowners insurance are usually paid through an escrow account, adding to your monthly out-of-pocket cost. Private mortgage insurance (PMI) is also required if your down payment is less than 20%.
How to compare loan scenarios
A 30-year fixed mortgage gives you the lowest monthly payment but costs the most in total interest. A 15-year mortgage has a higher payment but builds equity faster and saves thousands in interest. Use the mortgage calculator to test different rates, down payments, and terms side by side.
Action step
Enter your home price, down payment, interest rate, and loan term into the mortgage calculator. Then adjust the term to see how much faster you can pay off the loan and how much interest you can save.