How to Calculate Your Monthly Mortgage Payment (With Examples)

Q: What interest rate should I use in the formula?

Use your annual percentage rate as a decimal divided by 12 to get the monthly rate. For example, a 6.5% annual rate becomes 0.065 / 12, or about 0.005417 per month.

Finance guide · 8 min read · US dollars

Reviewed by Anas Rabja, Founder & Editor · Last reviewed June 2026

When you take out a fixed-rate mortgage in the United States, your principal-and-interest payment is the same dollar amount every month for the life of the loan. That number isn't magic — it comes from a single, well-known equation called the amortization formula. Once you understand it, you can sanity-check any quote a lender gives you and see exactly how a higher rate or a longer term changes what you owe. This guide walks through the math in plain English, with worked examples in USD.

The three inputs you need

Every monthly payment calculation starts with the same three numbers:

Loan amount (principal): the home price minus your down payment. If you buy a $400,000 house and put $80,000 down, you're financing $320,000.
Monthly interest rate: your annual percentage rate divided by 12. A 6.5% annual rate is 0.065 ÷ 12 ≈ 0.005417 per month.
Number of payments: the loan term in months. A 30-year mortgage has 30 × 12 = 360 payments; a 15-year loan has 180.

The amortization formula

The monthly principal-and-interest payment, usually written as M, is:

Formula

M = P × [ r (1 + r)ⁿ ] ÷ [ (1 + r)ⁿ − 1 ]

where P = loan amount, r = monthly interest rate (annual ÷ 12), and n = total number of monthly payments.

It looks intimidating, but it's just three operations: raise (1 + r) to the power of n, plug that into the top and bottom, then multiply by the principal. Let's do a real one.

Worked example: a $320,000 loan at 6.5% for 30 years

Start with the inputs: P = $320,000, r = 0.065 ÷ 12 = 0.0054167, and n = 360.

First compute (1 + r)ⁿ = (1.0054167)³⁶⁰ ≈ 7.0001.
Top of the fraction: r × 7.0001 = 0.0054167 × 7.0001 ≈ 0.037917.
Bottom of the fraction: 7.0001 − 1 = 6.0001.
Divide: 0.037917 ÷ 6.0001 ≈ 0.0063194.
Multiply by principal: $320,000 × 0.0063194 ≈ $2,022 per month.

Over 360 payments that's about $728,000 total, meaning roughly $408,000 of it is interest. Seeing that total is exactly why the formula is worth understanding.

What changing the term does

Run the same $320,000 at 6.5% over 15 years (n = 180) and the monthly payment jumps to about $2,787 — higher each month, but total interest falls to roughly $182,000. A shorter term costs more per month and far less over time. This is the kind of trade-off the formula makes visible.

Don't forget taxes, insurance and PMI

The formula above only covers principal and interest. Your actual bill from the servicer usually bundles in four more items, often abbreviated as PITI plus extras:

Property taxes — collected monthly and held in escrow, then paid to your county or city.
Homeowners insurance — also escrowed in most cases.
Private mortgage insurance (PMI) — usually required if your down payment is under 20%.
HOA dues — if your property belongs to a homeowners association.

On our example loan, adding $400 in taxes, $150 in insurance and $130 in PMI would push the true monthly cost from $2,022 to roughly $2,702. Always budget for the full number, not just principal and interest.

Check your math instantly

Doing this by hand once is great for understanding; doing it ten times to compare scenarios is tedious. Our Mortgage Calculator runs the exact formula above in your browser and shows the breakdown of principal versus interest. For non-mortgage borrowing like auto or personal loans, the same amortization math applies — try the Loan Calculator, which displays the formula it used so you can verify the result.

Frequently asked questions

Does the mortgage formula include property taxes and insurance?

No. The amortization formula only covers principal and interest. Property taxes, homeowners insurance, PMI and HOA dues are added on top to get your full monthly housing payment.

Why does so much of my early payment go to interest?

Interest is charged on the remaining balance, which is largest at the start. As the balance shrinks over the years, less of each fixed payment goes to interest and more goes to principal.

What interest rate should I use in the formula?

Use your annual rate as a decimal divided by 12. A 6.5% annual rate becomes 0.065 ÷ 12 ≈ 0.005417 per month.

This article is for general education only and is not financial advice. Verify any figures with your lender before making a decision.