Mortgage Calculator

How monthly mortgage payments are calculated

Your mortgage payment is split across principal and interest first, then everything your lender collects into escrow. The principal-and-interest part is a level payment: the same amount every month, with the split shifting over time from mostly interest toward mostly principal.

The formula behind it is the standard annuity expression PMT = P × r ÷ (1 − (1 + r)^−n), where P is the loan amount, r is the monthly rate (annual rate divided by 12) and n is the total number of payments. A 30-year loan therefore makes 360 payments.

Add property taxes, homeowners insurance and PMI each month and you get the number lenders actually care about, sometimes called PITI: principal, interest, taxes and insurance. HOA dues are not part of PITI, but they are part of what leaves your bank account every month, so this calculator lets you include them.

What is not included in your payment

Most first-time buyers are surprised by how much of their housing cost sits outside the loan payment. Budget for these separately:

• Closing costs — typically 2% to 5% of the loan amount, paid at settlement.
• Private mortgage insurance (PMI) — required on conventional loans when your down payment is under 20%. It usually costs 0.3% to 1.5% of the loan per year and can be cancelled once you reach 20% equity.
• Maintenance — a common rule of thumb is 1% of the home value per year.
• Utilities, trash, internet and any special assessments your HOA levies.
• Moving costs and immediate repairs or furniture.

Why extra principal payments are so powerful

Every dollar of extra principal skips all the future interest that dollar would otherwise have generated, and it pulls the final payment date closer. Because interest compounds against you on a declining balance, even modest extra payment amounts can shorten a 30-year loan by several years.

Compare two options before committing: extra payments lock money into your home equity at an effective return equal to your mortgage rate, while investing in a retirement account may earn more over the long run. Many households do some of both.

Tips for reading the amortization table

In the first few years the interest column dominates — that is normal and not a sign your loan is broken. The crossover point where principal exceeds interest usually arrives somewhere between year 12 and year 20 on a 30-year fixed loan, depending on the rate.

If you plan to refinance or sell within a few years, compare loans using the interest paid over your expected holding period rather than over the full term. A shorter term with a lower rate is not always cheaper if you move in three years.