How the monthly mortgage payment is calculated
A fixed-rate mortgage uses standard amortization. The principal-and-interest portion of your monthly payment comes from this formula:
M = P × [r(1 + r)n] / [(1 + r)n − 1]
Where P is the loan amount (home price minus down payment), r is the monthly interest rate (annual rate ÷ 12), and n is the total number of monthly payments (years × 12). Property taxes, homeowner's insurance, PMI, and HOA dues are added on top of this principal-and-interest payment.
Principal & interest vs. total monthly payment
The number most lenders quote is principal & interest (P&I) — but it isn't the full check that leaves your bank account each month. The total monthly payment usually includes:
- Principal: the portion that reduces your loan balance. Tiny in the early years, larger over time.
- Interest: the cost of borrowing. Largest in the early years, falls as the balance shrinks.
- Property taxes: annual tax bill divided by 12, usually held in escrow by the lender.
- Homeowner's insurance: annual premium divided by 12, also typically escrowed.
- PMI: required on conventional loans when your down payment is under 20% — see below.
- HOA dues: if applicable, paid directly to the HOA — not escrowed by the lender.
On a $300,000 loan at 6% interest with 1.1% property tax, $1,500 / yr insurance, and no PMI or HOA, the principal & interest is about $1,799/month, but the total monthly housing cost is closer to $2,200. Always budget against the full payment, not just P&I.
$300,000 mortgage payment examples
30-year fixed loan, principal & interest only — taxes, insurance, PMI, and HOA not included.
| Interest rate | Monthly P&I | Total interest | Total paid |
|---|---|---|---|
| 5.0% | $1,610.46 | $279,767 | $579,767 |
| 6.0% | $1,798.65 | $347,515 | $647,515 |
| 7.0% | $1,995.91 | $418,527 | $718,527 |
$400,000 mortgage payment examples
30-year fixed loan, principal & interest only.
| Interest rate | Monthly P&I | Total interest | Total paid |
|---|---|---|---|
| 5.0% | $2,147.29 | $373,023 | $773,023 |
| 6.0% | $2,398.20 | $463,353 | $863,353 |
| 7.0% | $2,661.21 | $558,036 | $958,036 |
How interest rates affect your monthly payment
Each one-percentage-point increase in the rate adds roughly $190/month to a $300,000 loan and $260/month to a $400,000 loan — and adds $70,000–$95,000 in lifetime interest over a 30-year term. Small rate differences compound dramatically across 360 payments.
That's why locking a rate, paying for points, or waiting for rates to move can each be worth real money. Use this calculator to test the same loan at multiple rates to see the range — and compare offers using APR, not just the interest rate, since APR rolls in fees and gives a more honest comparison.
15-year vs. 30-year mortgage
The loan term is one of the most consequential decisions you'll make. Here's the same $300,000 loan at 6% on a 15-year vs. a 30-year:
| Term | Monthly P&I | Total interest | Total paid |
|---|---|---|---|
| 15 years | $2,531.57 | $155,683 | $455,683 |
| 30 years | $1,798.65 | $347,515 | $647,515 |
Choosing a 15-year over a 30-year saves about $192,000 in interest on this example — but the monthly payment is roughly $733 higher. In practice 15-year rates are typically 0.5–0.75% lower than 30-year rates, which widens the savings further. The right call depends on cash flow, other priorities, and how stable your income is.
How PMI works
Private Mortgage Insurance is required on conventional loans when your loan-to-value (LTV) ratio is above 80% — meaning your down payment is less than 20%. PMI typically costs 0.5%–1.5% of the loan amount annually, added to your monthly payment, and protects the lender, not you.
PMI is modeled as ending when the scheduled loan balance reaches 78% of the original home value. Borrower-requested cancellation may be possible around 80% LTV, subject to lender and legal requirements. If your home has appreciated significantly you may also be able to drop PMI earlier by ordering a new appraisal — talk to your lender about their specific policy.
Frequently asked questions
What is an escrow account?
An escrow account is managed by your lender and used to pay property taxes and homeowner's insurance on your behalf. Each month, a portion of these annual costs is collected with your mortgage payment and held until the bills come due. Escrow is required by most lenders when LTV is above 80%.
Should I put 20% down?
Twenty percent eliminates PMI and gives you immediate equity, but it's not always the right move. If putting 20% down would drain your emergency fund or delay buying significantly, a smaller down payment with PMI may be more practical. PMI can be removed later; depleted savings can't always be rebuilt quickly.
What rate should I use in this calculator?
Use the APR (Annual Percentage Rate) from your lender's loan estimate, not just the quoted interest rate. APR includes fees rolled into the loan cost and gives a truer picture of what you'll pay over the life of the loan.