🏠 Mortgage Calculator
Calculate your monthly mortgage payments and total loan cost
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📘 How Mortgage Payments Work
This calculator determines your mortgage payment using the standard loan amortization formula, which calculates fixed periodic payments that gradually pay off both principal and interest over the loan term.
The formula for calculating mortgage payments is:
Where:
M = Monthly payment
P = Loan principal amount
i = Monthly interest rate (annual rate ÷ 12)
n = Total number of payments (loan term in years × 12)
In the early years of your mortgage, a larger portion of each payment goes toward interest rather than principal. As you continue to make payments, the interest portion decreases while the principal portion increases. This process is called amortization.
Your payment frequency affects the total interest paid over the life of the loan. More frequent payments (bi-weekly or weekly) can reduce your total interest cost and help you pay off your mortgage faster.
The monthly mortgage payment is calculated using the formula: M = P [ i(1 + i)^n ] / [ (1 + i)^n - 1 ], where M is the monthly payment, P is the principal loan amount, i is the monthly interest rate (annual rate divided by 12), and n is the number of payments (loan term in years multiplied by 12). This formula accounts for both principal and interest components of your payment.
This calculation assumes a fixed interest rate for the entire loan term. For adjustable-rate mortgages (ARMs), the calculation would be more complex as the interest rate can change over time.
The principal is the original amount of money you borrowed to purchase your home. Interest is the cost of borrowing that money, calculated as a percentage of the outstanding principal. In the early years of your mortgage, a larger portion of your payment goes toward interest. As you pay down the loan, more of your payment applies to the principal.
For example, on a 30-year fixed mortgage at 4%, in the first year approximately 75% of your payment goes toward interest and 25% toward principal. By the final year, this ratio reverses with most of your payment reducing the principal balance.
A larger down payment reduces your loan amount, which results in lower monthly payments and less total interest paid over the life of the loan. It may also help you qualify for a lower interest rate, avoid private mortgage insurance (PMI) if you put down 20% or more, and build equity in your home faster.
For example, on a $300,000 home with a 4% interest rate for 30 years:
- 10% down ($30,000): Monthly payment ≈ $1,289, Total interest ≈ $194,000
- 20% down ($60,000): Monthly payment ≈ $1,146, Total interest ≈ $172,000
The choice between a 15-year and 30-year mortgage depends on your financial situation and goals:
15-Year Mortgage:
- Higher monthly payments
- Lower interest rate (typically 0.5-1% lower than 30-year)
- Substantially less interest paid over the life of the loan
- Build equity faster
- Loan is paid off in half the time
30-Year Mortgage:
- Lower monthly payments (about 40-50% less than 15-year)
- More cash flow flexibility
- Higher total interest cost
- Can invest the payment difference
- Tax deduction on mortgage interest may be more valuable
Generally, choose a 15-year mortgage if you can comfortably afford the higher payments and want to save on interest. Choose a 30-year mortgage if you need lower payments or want more financial flexibility.
Mortgage amortization is the process of gradually paying off your loan through regular payments that cover both principal and interest. With each payment, you reduce your loan balance (principal) while also paying the interest charges for that period.
Amortization schedules show how each payment is split between principal and interest. In the early years, most of your payment goes toward interest. As time passes, more of your payment applies to the principal. This is why it takes several years to build significant equity in your home through mortgage payments alone.
You can view the amortization schedule for your loan using this calculator to see exactly how each payment affects your loan balance over time.