How a Mortgage Payment Is Calculated
How is a mortgage payment calculated? The formula, what tax, insurance, PMI and HOA dues add, 15- vs 30-year costs, and checking it with a mortgage calculator.
By Udit Agarwal · Updated October 17, 2026
A monthly mortgage payment is calculated with the standard amortizing-loan formula, M = P × r × (1 + r)^n ÷ ((1 + r)^n − 1), where P is the amount borrowed, r is the annual interest rate divided by 12, and n is the number of monthly payments. On a $240,000 loan at 6% for 30 years, that gives $1,438.92 a month in principal and interest. Property tax, homeowners insurance, private mortgage insurance (PMI) and any HOA dues are then added on top, so the full monthly cost of a home is higher than the loan payment alone.
A standard fixed-rate mortgage is a fully amortizing loan: you pay the same amount every month, and that amount is set so the balance reaches exactly zero with the last payment. Four numbers go into the formula:
Worked through for a $300,000 home with $60,000 down (P = 240,000) at 6% for 30 years:
| Step | Calculation | Result |
|---|---|---|
| Monthly rate | 0.06 ÷ 12 | 0.005 |
| Number of payments | 30 × 12 | 360 |
| Growth factor | (1 + 0.005)^360 | 6.022575 |
| Top of the fraction | 240,000 × 0.005 × 6.022575 | 7,227.09 |
| Bottom of the fraction | 6.022575 − 1 | 5.022575 |
| Monthly payment | 7,227.09 ÷ 5.022575 | $1,438.92 |
If the rate were 0%, the formula would divide by zero; the payment is then simply P ÷ n, or $666.67 a month for this loan. At 6%, the 360 payments add up to about $518,000, so the interest over the life of the loan comes to more than the amount borrowed.
Lenders often sum up the monthly cost as PITI: principal, interest, taxes and insurance. Two more items apply to many buyers.
| Item | What it pays for | How it is usually quoted |
|---|---|---|
| Principal | Reduces what you owe | Part of the loan payment |
| Interest | The lender's charge on the remaining balance | Part of the loan payment |
| Property tax | Local tax on the home's assessed value | Per year; divide by 12 |
| Homeowners insurance | Covers damage to the home | Per year; divide by 12 |
| PMI | Protects the lender on a low-down-payment loan | Per month |
| HOA dues | A homeowners or condo association's fees | Per month |
Many lenders collect the tax and insurance with each payment, hold the money in an escrow account, and pay the bills when they are due. HOA dues are usually paid to the association directly, but they are still part of what the home costs each month.
For the $240,000 loan, with property tax of $3,600 a year and insurance of $1,500 a year (illustrative figures; both vary widely by location and home):
| Component | Monthly |
|---|---|
| Principal and interest | $1,438.92 |
| Property tax ($3,600 ÷ 12) | $300.00 |
| Homeowners insurance ($1,500 ÷ 12) | $125.00 |
| PMI (20% down, so none) | $0.00 |
| HOA dues (none) | $0.00 |
| Total | $1,863.92 |
Only the principal and interest stay fixed for the life of a fixed-rate loan. Tax bills and insurance premiums change, so the escrow part of the payment can rise or fall from year to year.
The down payment is subtracted from the price to give the loan amount, and lenders compare the two as the loan-to-value ratio (LTV): the loan divided by the home's value. Borrowing $240,000 on a $300,000 home is an LTV of 80%. The Down Payment Calculator converts between a down payment percentage and a dollar amount and shows the loan that results.
On a conventional loan, a down payment below 20%, which means an LTV above 80%, usually comes with private mortgage insurance. With 10% down on the same home, the loan is $270,000 and principal and interest rise to $1,618.79, which is $179.87 more each month before any PMI. Adding an illustrative $100 a month of PMI to the same tax and insurance brings the total to $2,143.79. FHA loans charge their own mortgage insurance premium instead, and the FHA Loan Calculator estimates it.
PMI does not last forever. Under the US Homeowners Protection Act you can ask the servicer to cancel it once the balance is scheduled to reach 80% of the home's original value, and it must end automatically when the balance is scheduled to reach 78%, provided your payments are current. On the $270,000 loan, the original schedule reaches 80% of the $300,000 value after payment 89, about seven and a half years in, and 78% after payment 103. The CFPB explains the conditions, such as a written request and a good payment history.
The same $240,000 at 6% over three terms:
| Term | Monthly principal and interest | Total interest | Total paid |
|---|---|---|---|
| 15 years | $2,025.26 | $124,546.15 | $364,546.15 |
| 20 years | $1,719.43 | $172,664.29 | $412,664.29 |
| 30 years | $1,438.92 | $278,011.65 | $518,011.65 |
The totals use the unrounded payment, as the calculator does, so they can differ by a few cents from the rounded payment multiplied by the number of months.
The 15-year loan costs $586.34 more each month and saves $153,465.50 in interest, because the balance falls faster and interest is charged on less money for fewer months. Both loans charge the same $1,200.00 of interest in the first month, but the 15-year payment sends $825.26 to principal against $238.92 on the 30-year loan.
Lenders usually offer 15-year loans at a lower rate than 30-year loans, which widens the gap: at 5.5%, the 15-year payment on the same loan is $1,961.00. Neither term suits everyone. The 30-year loan leaves more room in the monthly budget, and the 15-year loan costs far less over its life.
For the $240,000, 30-year loan:
| Rate | Monthly principal and interest | Total interest |
|---|---|---|
| 5.0% | $1,288.37 | $223,813.88 |
| 5.5% | $1,362.69 | $250,569.70 |
| 6.0% | $1,438.92 | $278,011.65 |
| 6.5% | $1,516.96 | $306,106.77 |
| 7.0% | $1,596.73 | $334,821.36 |
| 7.5% | $1,678.11 | $364,121.34 |
| 8.0% | $1,761.03 | $393,972.59 |
Each half point adds between $74 and $83 a month at these rates, and a quarter point is worth about $39. Going from 6% to 7% raises the payment by $157.81, about 11%. That move is one percentage point, but a 16.7% increase in the rate itself, a difference the percentage guide explains. The payment rises by less than the rate because only part of it is interest.
Each month's interest is the remaining balance times the monthly rate. On the first payment of the $240,000 loan, that is 240,000 × 0.005 = $1,200.00, so only $238.92 of the $1,438.92 reduces the balance. In the first year you pay about $17,267, and about $14,320 of it, 83%, is interest. After 10 years the balance is still $200,845.74.
The interest share falls every month as the balance shrinks, but on this loan principal overtakes interest only with payment 223, about 18 and a half years in. The amortization guide works through a schedule row by row, and the Mortgage Payoff Calculator shows how extra monthly or one-time payments shorten the loan.
The Mortgage Calculator applies the formula above. Enter the home price, an optional down payment in dollars, the annual interest rate and the term in years. You can also add yearly property tax, yearly homeowners insurance, monthly HOA dues and monthly PMI. It shows the loan amount, the principal and interest payment, the monthly total with those costs folded in, and the total interest and total paid over the term; those two totals cover principal and interest only. A schedule lists the interest, principal and remaining balance for the first 24 payments, and the summary can be copied as text.
It models a fixed-rate loan with monthly payments. PMI is taken as a fixed monthly amount, such as the figure on a lender's Loan Estimate, and the calculator does not work it out or remove it at 78%. Closing costs and points are not included. Enter the loan's interest rate rather than its APR, because the APR includes fees and would overstate the payment. The figures are calculated in your browser and are not uploaded, and the last values you entered are remembered in this browser for your next visit. The results are estimates, not financial advice.
How is a monthly mortgage payment calculated? Divide the annual rate by 12 to get the monthly rate r, count the monthly payments n, and apply M = P × r × (1 + r)^n ÷ ((1 + r)^n − 1) to the amount borrowed. That gives principal and interest. Add one-twelfth of the yearly property tax and insurance, plus any PMI and HOA dues, for the full monthly cost.
What does PITI stand for? Principal, interest, taxes and insurance, the four parts of a typical monthly payment when the lender collects tax and insurance through escrow. PMI and HOA dues come on top when they apply.
How much does a 1% higher rate add to a mortgage payment? On a $240,000, 30-year loan, going from 6% to 7% adds $157.81 a month and about $56,810 in interest over the term. The payment scales with the loan amount, so on a $480,000 loan the same change adds about $316 a month.
Do I have to pay PMI with less than 20% down? On a conventional loan, usually yes. You can ask to cancel it at 80% of the home's original value, and it ends automatically at 78% if payments are current. FHA loans have their own mortgage insurance with different rules.
Why doesn't my lender's payment match the calculator? The lender's tax and insurance estimates may differ from yours, PMI depends on the details of your loan, or the loan may carry points or an adjustable rate. A rate typed in as the APR instead of the interest rate also overstates the payment.
What is the difference between the interest rate and the APR? The interest rate is what the payment is calculated from. The APR adds points, broker fees and certain other charges and expresses the total as a yearly rate, so it is usually higher and is meant for comparing offers, as the CFPB describes. The APR Calculator folds fees and points into a loan's rate.
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