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

What Is Included in a Monthly Mortgage Payment?

A monthly mortgage payment is made up of several components. Lenders often refer to the core parts as PITI, which stands for principal, interest, taxes, and insurance.

• Principal: The portion of your payment that reduces the loan balance.
• Interest: The cost of borrowing money from the lender.
• Property taxes: Local government taxes, often collected monthly through escrow.
• Homeowners insurance: Required coverage that protects the property.
• Mortgage insurance (PMI/MIP): Required for some loans with smaller down payments.
• HOA dues: Monthly fees for condominiums or planned communities.

Understanding each component is essential because focusing only on principal and interest often leads buyers to underestimate their true monthly housing cost.

The Mortgage Payment Formula (Principal & Interest)

Fixed-rate mortgage payments for principal and interest are calculated using a standard amortization formula used by lenders worldwide.

Monthly P&I = P × ( r × (1 + r)^n ) / ( (1 + r)^n − 1 )

P = loan amount
r = monthly interest rate (annual rate ÷ 12)
n = total number of monthly payments

This formula ensures that your loan is fully paid off by the end of the term, with early payments weighted more toward interest and later payments applying more toward principal.

How to Calculate a Mortgage Payment Step-by-Step

1. Start with the home purchase price.
2. Subtract your down payment to get the loan amount.
3. Convert the annual interest rate to a monthly rate.
4. Multiply the loan term by 12 to get total payments.
5. Apply the mortgage payment formula.
6. Add estimated taxes, insurance, and mortgage insurance.

While manual calculations help you understand the math, most buyers use a calculator to test scenarios quickly and avoid errors.

Mortgage Payment Calculation Example

Here’s a simplified example to show how everything comes together.

• Home price: $350,000
• Down payment: 20% ($70,000)
• Loan amount: $280,000
• Interest rate: 6.5%
• Loan term: 30 years

Using the formula, the principal and interest payment is approximately $1,770 per month. After adding estimated taxes, insurance, and any applicable mortgage insurance, the total monthly payment may be closer to $2,200.

How Loan Term Affects Your Mortgage Payment

Loan term length plays a major role in your monthly payment and total interest paid.

• Longer terms lower monthly payments but increase total interest.
• Shorter terms raise payments but reduce interest significantly.
• Equity builds faster with shorter loan terms.

Explore different scenarios using our loan term calculators.

Why Mortgage Payments Change Over Time

Even with a fixed-rate loan, your total mortgage payment can change due to escrow adjustments.

• Property tax increases
• Insurance premium changes
• Escrow shortages or surpluses

Reviewing your annual escrow analysis helps you anticipate payment changes before they occur.

Mortgage Calculator vs Manual Calculation

Manual calculations build understanding, but calculators save time and reduce errors.

Use a calculator when comparing loan terms, planning affordability, or estimating total interest over time.

Try our mortgage payment calculator to see your full monthly payment instantly.