Monthly Payment Formula
Your monthly mortgage payment is calculated using the standard amortization formula:
M = P × [r(1 + r)^n] / [(1 + r)^n - 1]
- M = Monthly payment
- P = Principal loan amount
- r = Monthly interest rate (annual rate / 12)
- n = Total number of payments
What Makes Up Your Monthly Payment?
- Principal & Interest: The base mortgage payment that pays down your loan
- Property Taxes: Annual property taxes divided by 12 months
- Home Insurance: Required insurance to protect your home
- PMI: Private Mortgage Insurance required if down payment is less than 20%
- HOA Fees: Homeowners association fees if applicable
- Other Costs: Utilities, maintenance, and other ongoing expenses
How Extra Payments Can Save You Money
Making extra payments toward your principal can significantly reduce the total interest you pay and shorten your loan term:
- Extra Monthly Payments: Even small additional payments each month can save thousands over the life of the loan
- Yearly Lump Sum: Annual bonuses or tax refunds applied to your mortgage can make a big difference
- One-Time Payments: Windfalls like inheritances or investment gains can dramatically reduce your interest
Tips for Getting the Best Mortgage
- Improve your credit score: Higher scores typically qualify for lower interest rates
- Save for a larger down payment: 20% down avoids PMI and may secure better rates
- Shop around: Compare rates from multiple lenders including banks, credit unions, and online lenders
- Consider shorter terms: 15-year mortgages have higher monthly payments but much lower total interest
- Get pre-approved: Know your budget and show sellers you're a serious buyer
Important Considerations
- • This calculator provides estimates based on the information you enter
- • Actual rates and terms may vary based on credit score, location, and lender
- • Property taxes and insurance costs can increase over time
- • PMI can typically be removed once you reach 78% LTV
- • Consult with a mortgage professional for personalized advice