How to Calculate Your Mortgage Payment (With Formula)

What Makes Up a Mortgage Payment?

Your monthly mortgage payment typically has four parts, often called PITI:

Principal — reduces your loan balance
Interest — cost of borrowing
Taxes — property tax (escrowed monthly)
Insurance — homeowner's insurance (escrowed monthly)

The Mortgage Payment Formula

Monthly P&I = P × r × (1+r)ⁿ / [(1+r)ⁿ − 1] Total Monthly Payment = P&I + (Annual Tax ÷ 12) + (Annual Insurance ÷ 12) P = Loan amount (home price − down payment) r = Monthly interest rate (APR ÷ 12 ÷ 100) n = Term in months (e.g. 30 years = 360)

Worked Example

Home price: $350,000 | Down payment: 20% ($70,000) | APR: 7% | Term: 30 years

Loan = $280,000 | r = 0.07÷12 = 0.005833 | n = 360
P&I = 280,000 × 0.005833 × (1.005833)³⁶⁰ ÷ [(1.005833)³⁶⁰ − 1]
P&I ≈ $1,862/month
Add tax ($350) + insurance ($150) = ~$2,362 total/month

How Does a Down Payment Affect Your Payment?

Every extra dollar of down payment directly reduces the loan principal. On a $300,000 loan at 7%, an extra $10,000 down reduces your monthly payment by about $67/month — saving you over $24,000 in interest over 30 years.

30-Year vs 15-Year Mortgage

30-year: Lower monthly payment, much more interest paid overall.
15-year: Higher payment (~40% more), but total interest is roughly half. Rate is also typically 0.5–1% lower.

What Is PMI?

If your down payment is less than 20%, lenders require Private Mortgage Insurance (PMI) — typically 0.5%–1.5% of the loan per year added to your payment. It's removed once your equity reaches 20%.

Tips to Get a Lower Payment

Improve your credit score before applying (aim for 740+)
Shop at least 3–5 lenders and compare APRs
Buy points to permanently reduce your rate
Choose a longer term if cash flow is tight (refinance later)