How a mortgage payment is calculated
A fixed-rate mortgage is paid back in equal monthly instalments. Each payment covers that month's interest first, and whatever is left reduces the loan. Early on most of the payment is interest; by the end almost all of it is principal. This calculator shows the monthly payment, the total interest over the life of the loan, the payoff month and the first year of that schedule.
It is a planning tool for comparing scenarios: a bigger down payment, a shorter term or a lower rate. Your lender's offer will include fees and costs this page does not know about.
How to use it
- Enter the home price.
- Enter your down payment. The tool subtracts it from the price to get the amount you borrow, shown as Principal.
- Enter the annual interest rate and the term in years, for example 30 or 15.
- Read the monthly payment, total interest and payoff date, then scroll through the first 12 months to see how each payment splits between interest and principal.
Example: a 30-year loan with 20% down
Home price 400,000, down payment 80,000, 6.5% for 30 years
Principal: $320,000.00 Monthly payment: $2,022.62 Total interest: $408,142.36 Month 1: $1,733.33 interest, $289.28 principal
Over 30 years the interest costs more than the loan itself. In the first month, 86% of the payment is interest.
The formula
The payment is M = P × r × (1 + r)^n ÷ ((1 + r)^n − 1), where P is the amount borrowed, r is the monthly rate (the annual rate divided by 12) and n is the number of monthly payments. Each month, interest is the remaining balance times r, and the rest of M pays down the balance. Because the balance shrinks, the interest share falls every month while the payment stays the same.
What the payment does not include
The figure here is principal and interest only. In the United States lenders usually collect property tax and homeowner's insurance with the payment, together often called PITI, and loans with less than 20% down usually add private mortgage insurance. Closing costs, origination fees and points are paid separately. Add those to compare real monthly costs, and use the lender's annual percentage rate (APR) rather than the headline rate to compare offers.
Levers that change the total
A 15-year term has a higher monthly payment but usually a lower rate and far less total interest. Extra payments towards principal, even small ones, shorten the loan, because they reduce the balance on which every later month's interest is charged. A larger down payment lowers the amount borrowed and can remove the need for mortgage insurance.
Questions
Is this an offer or a pre-approval?
No. It is arithmetic on the numbers you enter. Rates and terms come from your lender and depend on your credit, income and the property.
Does it handle adjustable-rate mortgages?
No. It assumes the rate stays the same for the whole term. For an ARM, run it once with the starting rate and again with a higher rate to see the risk.
Why is the payoff date shown as a month?
The payoff date is the current month plus the number of monthly payments in the term, so it shows when the loan is cleared rather than an exact day.