How the mortgage payment is calculated
The principal and interest part of a fixed-rate mortgage payment uses the standard amortization formula:
M = P × r × (1 + r)^n / ((1 + r)^n − 1)
P is the loan amount, r is the monthly interest rate (annual rate divided by 12) and n is the number of monthly payments. Property tax, home insurance, HOA fees and PMI are then added to get the full monthly payment, often called PITI (principal, interest, taxes and insurance).
Example
A $400,000 home with $80,000 down (20%) at 6.5% for 30 years needs a loan of $320,000. The principal and interest payment is $2,022.62 a month. Adding $400.00 for property tax and $125.00 for insurance brings the total to $2,547.62. Over the full term you would pay $408,142 in interest.
How to lower your mortgage payment
- Make a larger down payment: it reduces the loan and removes PMI once you reach 20%.
- Compare rates: get Loan Estimates from several lenders on the same day.
- Choose a longer term: the payment falls, but you pay more interest in total.
- Review property tax and insurance: both are part of the monthly payment.
Frequently asked questions
What is included in a monthly mortgage payment?
Most payments include principal and interest plus escrow for property tax and home insurance (PITI). PMI and HOA fees are added when they apply.
What is PMI?
Private mortgage insurance is usually required on a conventional loan when the down payment is less than 20% of the home price. It is typically removed once you reach 20% equity.
What is an amortization schedule?
It is a table of every payment over the life of the loan, showing how much goes to interest, how much reduces the principal and the remaining balance. See the amortization calculator for details.
Are these results exact?
No. Results are estimates for information only. Your lender's figures may differ.