Data Source and Methodology
Authoritative Source: Consumer Financial Protection Bureau (CFPB), "How is a mortgage payment calculated?", last updated 2023. Direct link
All calculations are strictly based on standard amortization formulas and the components described by the CFPB. This calculator implements the industry-standard fixed-rate mortgage payment formula used by lenders worldwide.
The Formula Explained
The monthly principal and interest (P&I) payment for a fixed-rate mortgage is calculated using:
Monthly Payment (M):
M = P × [r(1 + r)^n] / [(1 + r)^n - 1]
Where:
- P = Principal loan amount
- r = Monthly interest rate (annual rate ÷ 12)
- n = Total number of payments (years × 12)
Total Interest: I = (M × n) - P
Total Monthly Payment: M + (Taxes/12) + (Insurance/12) + PMI + HOA
Glossary of Variables
- Loan Amount (P): The principal borrowed from the lender
- Interest Rate: The yearly note rate, converted to monthly for calculation
- Loan Term: Number of years to repay the loan (commonly 15 or 30 years)
- Monthly P&I: Payment covering interest and principal reduction
- Property Tax: Annual real estate taxes, typically escrowed monthly
- Homeowners Insurance: Annual hazard insurance, divided by 12
- PMI: Private Mortgage Insurance when down payment is below 20%
- HOA Dues: Homeowners Association fees, if applicable
- Extra Principal: Additional payment to reduce principal faster
How It Works: A Step-by-Step Example
Let's calculate payments for a $350,000 loan at 6.5% annual interest for 30 years:
- Convert annual rate to monthly: r = 0.065 / 12 ≈ 0.00542
- Calculate total payments: n = 30 × 12 = 360 months
- Apply the formula: M = 350,000 × [0.00542(1.00542)^360] / [(1.00542)^360 - 1]
- Result: M ≈ $2,212.03 per month (principal + interest only)
If annual property tax is $4,800 and insurance is $1,500, add $525/month. Total: $2,737.03
Adding $100 extra principal monthly reduces the loan term and saves thousands in interest.
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Frequently Asked Questions (FAQ)
What inputs are required to calculate my mortgage payment?
At minimum, you need the loan amount, annual interest rate, and term in years. Property taxes, insurance, PMI, HOA, and extra principal are optional but help estimate your complete housing payment.
How accurate are these results?
Results use standard amortization formulas and your inputs. Real-world figures may vary slightly due to escrow adjustments, changing tax/insurance rates, and lender-specific practices. Always verify with your lender.
What is included in a monthly mortgage payment?
A typical payment includes Principal, Interest, Taxes, and Insurance (PITI). The calculator estimates P&I, then adds taxes, insurance, PMI, and HOA if you provide those amounts.
When does PMI drop off?
PMI typically ends when you reach 20% equity based on current guidelines. This calculator treats PMI as a fixed monthly input. Contact your lender for specific removal requirements.
Why is total interest so high early on?
Amortized loans allocate more interest upfront because it's calculated on the outstanding principal. As principal decreases over time, the interest portion shrinks and principal portion grows.
How can I lower my monthly payment?
Options include making a larger down payment, choosing a longer loan term (e.g., 30 vs 15 years), improving your credit score for a better rate, or buying a less expensive home.
Tool developed by Ugo Candido. Content verified by CalcDomain Editorial Board.
Last reviewed for accuracy on: