How Mortgage Payments Are Calculated

Start with the loan amount

The amount you borrow is the home price minus your down payment. A $300,000 home with $60,000 down (20%) means a $240,000 loan.

The monthly payment formula

M = P × r ÷ (1 − (1 + r)^−n), where P is the loan amount, r is the annual rate divided by 12 (as a decimal), and n is the number of monthly payments (years × 12).

Worked example

For $240,000 at 6% for 30 years: r = 0.06 ÷ 12 = 0.005 and n = 360. The payment comes to about $1,438.92 a month.

Over 360 payments you pay about $518,012 in total — roughly $278,012 of that is interest.

How rate, term and down payment change things

A shorter term raises the monthly payment but cuts total interest sharply. A lower rate or larger down payment reduces both.

• 15 years instead of 30 at 6% on $240,000: about $2,025 a month, but roughly $124,500 interest instead of $278,000
• Each extra dollar of down payment is a dollar you don't pay interest on

What the payment leaves out

This is principal and interest only. Real monthly housing costs often include property tax, home insurance, mortgage insurance (PMI) if you put down less than 20%, and HOA fees. Closing costs are paid upfront.

Use the result to compare options, then get an official loan estimate from a lender. This is not financial advice.