Calculate your mortgage payment and total home loan cost
A mortgage payment is calculated using the same amortisation formula as any loan, but the numbers are larger and the terms longer — typically 15 to 30 years. Each monthly payment covers the interest owed on the remaining balance plus a portion of the principal. In the early years of a mortgage, the majority of each payment goes to interest rather than reducing the debt.
Monthly payment = P × r / (1 − (1 + r)^−n)
Where P is the loan amount, r is the monthly interest rate (annual rate ÷ 12), and n is the number of monthly payments.
The choice between a 30-year and 15-year mortgage is one of the most significant financial decisions in home buying. For a $300,000 mortgage at 6.5%:
| Term | Monthly payment | Total interest | Total paid |
|---|---|---|---|
| 30 years | $1,896 | $382,633 | $682,633 |
| 15 years | $2,613 | $170,426 | $470,426 |
The 15-year mortgage saves $212,207 in interest — but requires $717 more per month. Whether that trade-off makes sense depends on your income, other financial goals, and how long you plan to stay in the home.
A common guideline is that your monthly housing costs — mortgage payment, property taxes, and insurance — should not exceed 28% of your gross monthly income. Your total debt payments (housing plus car loans, student loans, credit cards) should not exceed 36–43% depending on the lender.
For a household earning $7,000 per month, the 28% rule suggests a maximum housing payment of $1,960. At 6.5% over 30 years, that supports a loan of approximately $309,000. Add your down payment to find the maximum home price.
A larger down payment reduces the loan amount, lowers monthly payments, and eliminates Private Mortgage Insurance (PMI) once you reach 20% equity. PMI typically costs 0.5–1.5% of the loan amount annually — on a $300,000 loan, that is $1,500–$4,500 per year added to your cost until you reach 20% equity.
A fixed-rate mortgage locks your interest rate for the entire term — your payment never changes. A variable (adjustable) rate mortgage starts with a lower rate that can change periodically based on a benchmark index. ARMs can be advantageous if you plan to sell or refinance before the rate adjusts, but carry the risk of significantly higher payments if rates rise.
Using the amortisation formula based on loan amount, interest rate, and loan term. The calculator above does this instantly — enter your loan amount, rate, and term to see monthly payment, total interest, and year-by-year breakdown.
This calculator shows principal and interest only. A real mortgage payment also includes property taxes, homeowners insurance, and potentially PMI and HOA fees — collectively called PITI (Principal, Interest, Taxes, Insurance). These can add 30–60% on top of the P&I payment shown here.
On a $300,000, 30-year mortgage, a 1% rate increase adds approximately $170 per month and $61,000 in total interest over the life of the loan. This demonstrates why rate shopping — even for a fraction of a percent — has significant financial value.
Mortgage points are upfront fees that reduce the interest rate — typically 1 point (1% of the loan) reduces the rate by 0.25%. To evaluate whether paying points makes sense, calculate the break-even period: divide the cost of the points by the monthly savings. If you plan to stay in the home past the break-even point, paying points saves money overall.
Extra payments go directly to principal, reducing the balance on which interest is charged. On a 30-year mortgage, paying one extra payment per year (or an equivalent amount spread monthly) typically reduces the term by 4–6 years and saves tens of thousands in interest.