What is a mortgage?
A mortgage is a loan to buy a home. The lender pays most of the price now, and you pay it back in monthly installments, usually over 15 or 30 years, with interest on top. The home itself is the security: if the payments stop, the lender can take it and sell it (foreclosure).
This calculator is for a fixed-rate mortgage, where the interest rate and the loan payment stay the same for the whole term. With an adjustable-rate mortgage (ARM), the rate can change after an opening period, so the payment can rise.
What goes into your monthly payment
The amount that leaves your account each month usually has up to five parts:
- Principal: the part that pays back what you borrowed.
- Interest: what the lender charges for the loan, on the balance you still owe.
- Property tax: charged by your local government every year, based on the home’s assessed value.
- Homeowners insurance: covers damage to the home. Lenders require it.
- PMI and HOA dues, if they apply: private mortgage insurance with less than 20% down, and fees to a homeowners association in many condos and planned neighborhoods.
Principal, interest, taxes and insurance together are often called PITI. Most lenders collect the tax and insurance with your payment and hold them in an escrow account, then pay the bills for you when they’re due. That’s why the calculator’s headline is the full amount, not just the loan payment.
How the loan payment is worked out
The principal-and-interest part comes from a standard formula: M = P × r(1 + r)n ÷ ((1 + r)n − 1). P is the amount you borrow, r is the yearly rate divided by 12, and n is the number of monthly payments (360 for 30 years).
The payment stays the same, but what it pays for changes. Interest is charged on what you still owe, so early payments are mostly interest and later ones mostly principal. The amortization schedule in the results shows that split for every month.
Worked example
Say you buy a $400,000 home with 20% down ($80,000), and borrow the remaining $320,000 at 6.5% for 30 years.
- Loan payment (principal and interest): $2,022.62
- With $3,600 a year of property tax and $1,737 of insurance, the full monthly payment: $2,467.37
- Interest over the whole loan: $408,142
- Total paid: $728,142
- In the first year, $20,695 of your $24,271 in payments goes to interest and only $3,577 pays down the loan.
Borrowing $320,000 at 6.5% over 30 years costs $2,022.62 a month in principal and interest. Adding the other costs you entered, the monthly payment is about $2,467. By October 2056 you’ll have paid $408,142 in interest, more than the amount you borrowed. Of your first payment, $1,733.33 goes to interest and $289.28 pays down the loan.
Monthly payment on a $300,000 mortgage at 6%, 7% and 8%
Principal and interest only, for a $300,000 loan, with the total interest over the whole loan below each payment. Taxes, insurance and any PMI come on top.
| Interest rate | 15-year loan | 30-year loan |
|---|---|---|
| 6% | $2,531.57 a month$155,683 interest | $1,798.65 a month$347,515 interest |
| 7% | $2,696.48 a month$185,367 interest | $1,995.91 a month$418,527 interest |
| 8% | $2,866.96 a month$216,052 interest | $2,201.29 a month$492,466 interest |
One percentage point on the rate changes the 30-year payment by about $200 a month and the total interest by more than $70,000. A 15-year loan costs more each month but far less interest over its life.
What changes the payment most
- The interest rate. Lenders set it partly from your credit score and down payment, so a stronger credit history can lower it. Our guide to what counts as a good credit score explains how scores work.
- The term. A longer term spreads the loan over more payments: lower each month, more interest in total.
- The down payment. Putting more down shrinks the loan, and reaching 20% usually avoids PMI.
- Extra payments. Anything above the regular payment goes straight to the balance. Open “Pay extra” in the calculator to see how much sooner the loan ends and how much interest that saves. Whether to pay early or invest the money instead is a trade-off; our post on paying off a mortgage early or investing walks through it.
Common mistakes
- Budgeting for the loan payment alone. Taxes, insurance and PMI can add several hundred dollars a month. The calculator’s headline includes them.
- Assuming taxes and insurance stay the same. Both usually rise over time, and the escrow part of the payment rises with them. The calculator keeps them flat, so treat later years as a minimum.
- Forgetting the upfront costs. Closing costs, moving and early repairs come on top of the down payment. Keeping an emergency fund after buying matters as much as the down payment.
- Borrowing the most a lender will approve. Approval says what the lender will risk, not what fits the rest of your budget. Try a few prices to see how the payment changes.
Thinking about property as an investment rather than a home? Our real estate investing guide for beginners covers the main ways in.