How to Calculate a Mortgage Payment (Step-by-Step)

TL;DR

• Mortgage payments are based on principal, interest rate, and term.
• A small rate change can move your payment more than expected.
• This guide shows the formula and a worked example in USD.

Key idea

A fixed-rate mortgage payment is a standard amortized loan payment. The monthly payment stays the same, but the split between interest and principal changes over time.

The three inputs are loan amount (principal), annual interest rate, and term in years. Once you convert the rate to monthly and the term to number of payments, you can calculate the payment using a single formula.

Step-by-step example

Suppose you borrow $320,000 at 6.25% for 30 years.

1. Monthly rate: 6.25% / 12 = 0.5208% (0.005208 as a decimal)
2. Number of payments: 30 × 12 = 360
3. Payment ≈ $1,969 per month (principal + interest)

Common mistakes

• Mixing annual and monthly rates.
• Forgetting to convert years to total monthly payments.
• Assuming the payment includes taxes and insurance.

Practical tips

• Compare 15-year vs 30-year terms to see the trade-off.
• Test a higher rate to stress-test your budget.
• Add taxes and insurance separately for a true monthly cost.
• Use conservative assumptions if rates are volatile.
• Check the total interest paid over the full term.

FAQ

Q: Does the formula include taxes and insurance? A: No, it is principal and interest only unless your calculator adds PITI.

Q: Why does my lender show a different payment? A: Lenders may include escrow, fees, or different rounding rules.

Q: Is the payment exact? A: It is an estimate based on your inputs and assumptions.

Q: Can I use this for adjustable-rate mortgages? A: The formula applies to fixed-rate periods; ARMs need updated rates over time.

Related calculator

Want to check your numbers quickly? Try the Mortgage Payment Calculator.