How Is a Mortgage Payment Calculated?
Last updated: 2026-10-17
A fixed-rate mortgage payment is calculated with the amortization formula: M = P × r(1+r)^n ÷ ((1+r)^n − 1), where P is the loan amount, r is the monthly interest rate, and n is the number of monthly payments. Each payment covers interest first, then principal.
What do the formula's parts mean?
P is the principal (amount borrowed). r is the annual rate divided by 12. n is the loan term in years × 12.
The result is principal and interest only; taxes, insurance, and HOA fees are added separately.
What is a worked example?
For a $300,000 loan at 6% for 30 years: r = 0.005 and n = 360. The monthly payment is about $1,799, and total interest over the full term is about $347,500.
How do extra payments help?
Extra payments go straight to principal, which reduces the balance that interest is charged on. This shortens the loan and lowers total interest.
Glossary
- Principal
- The amount of money borrowed, not including interest.
- APR
- Annual percentage rate: the yearly cost of borrowing, including some fees, expressed as a percentage.
- Amortization
- Paying off a loan through regular payments that cover interest and gradually reduce principal.
Frequently asked questions
Why does most of my early payment go to interest?
Interest is charged on the remaining balance, which is highest at the start, so early payments are mostly interest.
Does this formula work for car loans?
Yes. The same amortization formula applies to most fixed-rate installment loans.
WealthVitals tools provide estimates for educational purposes only and are not financial, tax, investment, medical, or mental health advice. Results vary.