How to Calculate a Mortgage Payment (Formula + Worked Example)
Your monthly mortgage payment is not a mystery the bank invents — it comes from one standard formula. Once you understand it, you can check any lender's quote, see exactly how rate and term change what you pay, and even work it out on a basic calculator. Here is the formula, a worked example by hand, and what the number really covers.
The mortgage payment formula
The monthly principal-and-interest payment is: M = P × r × (1 + r)^n ÷ ((1 + r)^n − 1). Here P is the loan amount, n is the number of monthly payments (years × 12), and r is the monthly interest rate — the annual rate divided by 12 and by 100. So a 6% annual rate becomes 0.06 ÷ 12 = 0.005 per month.
A worked example
Say you borrow 300,000 at 6% for 30 years. First, the monthly rate r is 0.06 ÷ 12 = 0.005. The number of payments n is 30 × 12 = 360. Now compute (1 + r)^n = 1.005^360, which is about 6.0226. Plug in: M = 300,000 × 0.005 × 6.0226 ÷ (6.0226 − 1) = 9,033.9 ÷ 5.0226, which is about 1,799 per month. Over 360 payments you would repay roughly 647,500 — meaning about 347,500 is interest, more than the original loan.
How to do it on a basic calculator
- Find the monthly rate: annual rate ÷ 12 ÷ 100.
- Find n: loan years × 12.
- Compute (1 + monthly rate), then raise it to the power n (multiply it by itself n times, or use the power key).
- Apply the formula: P × r × that result ÷ (that result − 1).
What the payment includes — and what it doesn't
The formula gives you principal and interest (P&I) only. Your actual housing payment usually also includes property taxes, homeowners insurance, and sometimes private mortgage insurance (PMI) if your down payment was under 20%, plus any HOA fees. Lenders often bundle taxes and insurance into your monthly payment through an escrow account, so the real number on your statement is higher than the P&I the formula produces.
Why is so much of my early payment interest?
Interest each month is charged on the remaining balance, which is largest at the start. So early payments are mostly interest and only slowly shift toward principal — a process called amortization. This is also why making extra principal payments early saves so much interest.
How does the loan term change my payment?
A longer term, like 30 years, lowers the monthly payment but raises total interest because you borrow for longer. A shorter term, like 15 years, costs more each month but far less overall. Run both to see the trade-off before you choose.
Does a bigger down payment lower my payment?
Yes. A larger down payment shrinks the loan amount P, which lowers the monthly payment proportionally, and crossing 20% down typically removes PMI as well — a double saving.
The bottom line
A mortgage payment comes from one formula balancing principal and interest across a fixed number of months — and the result is just P&I, before taxes, insurance and fees. Learn the formula to sanity-check any quote, and use our free mortgage calculator to compare rates and terms instantly.