How to Calculate Your Mortgage Payment Step by Step

What a mortgage payment is

Your mortgage payment is the amount you pay the bank every month to pay off your home loan — principal and interest only. Principal is the money you borrowed; interest is the bank’s charge for lending it. A $400,000.00 home with 20% down leaves a $320,000.00 loan, and at 6.5% APR over 30 years the monthly payment is $2,022.62 — $728,142.36 in total, of which $408,142.36 is interest. This guide works through the five steps that turn a house price into that number, and shows you what the number leaves out.

Step 1: Work out the loan amount

The loan is the home price minus your down payment. A $400,000.00 home with 20% down means a down payment of $80,000.00 and a loan of $400,000.00 − $80,000.00 = $320,000.00. The down payment matters twice: a bigger down payment means a smaller loan, and 20% is the usual figure that avoids PMI — the extra insurance lenders charge when you put down less. At 10% down the loan would be $360,000.00 and the payment $2,275.44.

Step 2: Turn the APR into a monthly rate

The APR is a yearly rate, but you pay monthly — so divide it by 12. At 6.5% APR the monthly rate is 6.5% ÷ 12 = 0.5417% a month, or 0.0054167 as a decimal. That small number does all the work in the formula: it is the rate applied to your balance every month. At 7.5% APR the monthly rate is 0.625% and the payment rises to $2,237.49.

Step 3: Count the payments

Multiply the term in years by 12. A 30-year loan is 30 × 12 = 360 payments; a 15-year loan is 15 × 12 = 180 payments. The number of payments is the exponent in the formula, and it is why the term matters so much: every extra year adds 12 payments of interest. The first payment is November 2026 and the last is October 2056 — the first payment plus 360 − 1 months.

Step 4: Apply the formula

The payment formula is M = L·r(1+r)^n / ((1+r)^n − 1), where L is the loan, r is the monthly rate and n is the number of payments. With L = $320,000.00, r = 0.0054167 and n = 360, the payment is $2,022.62 a month. The formula looks heavy, but it does one simple thing: it spreads the loan evenly so that every payment is the same and the balance reaches exactly zero on the last payment.

Step 5: Check the total interest

Multiply the payment by the number of payments, then subtract the loan. $2,022.62 × 360 = $728,142.36 paid in total; minus the $320,000.00 loan, that is $408,142.36 of interest — more than the loan itself. That is the number to compare when you shop for a rate: one point of APR, from 6.5% to 7.5%, lifts the total interest to $485,495.11. Totals are computed from unrounded values, so rounded parts may differ by a cent from their rounded sum.

The worked example

$400,000.00 home, 20% down, 6.5% APR, 30 years. Down payment: $400,000.00 × 20% = $80,000.00. Loan: $400,000.00 − $80,000.00 = $320,000.00. Monthly rate: 6.5% ÷ 12 = 0.5417%. Payments: 30 × 12 = 360. Payment: $320,000.00 × 0.0054167 × (1.0054167)^360 / ((1.0054167)^360 − 1) = $2,022.62. Total paid: $2,022.62 × 360 = $728,142.36. Total interest: $728,142.36 − $320,000.00 = $408,142.36. Payoff: October 2056. Totals are computed from unrounded values, so rounded parts may differ by a cent from their rounded sum.

Shorter terms cost less interest

Cut the term to 15 years and the payment rises to $2,787.54 — but the total interest falls to $181,757.84, saving $226,384.52 against the 30-year loan, and the payoff moves to October 2041. The payment goes up because the same loan is repaid in half the payments; the interest falls because the balance shrinks twice as fast. The longest whole-year term whose total interest stays under $200,000 is 16 years (interest $195,527.84); at 17 years it is $209,499.86 — above $200,000.

Working backwards

The formula runs backwards too. A $2,500 monthly payment supports a $395,527.05 loan at 6.5% over 30 years — a $494,408.81 home at 20% down. A $2,000 monthly payment needs an APR of 6.39% (exact 6.3923%); at the displayed 6.39% the payment is $1,999.52, and at the exact 6.3923% it is $2,000.00. A $300,000 loan on a $400,000 home needs 25.00% down. A $1,500 monthly payment supports a $237,316.23 loan — a $296,645.29 home at 20% down.

Extra payments

Paying extra toward the principal every month shortens the loan and cuts the interest. Adding $200.00 a month ends the loan in 281 months (March 2050), 79 months early, and saves $105,428.67 of interest. Adding $500.00 a month ends it in 216 months (October 2044) and saves $185,552.45. To pay the loan off in 20 years instead of 30 you need $363.22/mo extra; the 20-year payment is $2,385.83, and with the rounded extra the loan ends in 240 months with total interest $252,599.26 and interest saved $155,543.11.

What the payment leaves out

The payment this guide calculates is principal and interest ONLY. It leaves out property taxes, homeowner’s insurance, PMI and HOA dues — four costs that most buyers pay every month on top of it, often through an escrow account. It also assumes a fixed rate and equal monthly payments for the whole term, and that the first payment month is the month after closing. At 100% down there is no loan at all, and the payment is $0.00.

How this connects

Run your own numbers with the mortgage payment calculator; for the extra-payment plan in detail, see the mortgage extra payment calculator; for the 15- vs 30-year choice, see the 15-year vs 30-year mortgage comparison.