What goes into a mortgage payment
The core of every repayment mortgage is the same calculation as any fixed-rate loan: a constant monthly payment that covers interest and gradually repays the balance. In many countries, especially the US, the monthly amount paid to the lender also includes a share of the yearly property tax and home insurance, held in an escrow account. Lenders often call the total PITI: principal, interest, taxes and insurance.
Loan = home price − down payment
Principal & interest = Loan × r ÷ (1 − (1 + r)^−n) (r = annual rate ÷ 12, n = years × 12)
Monthly total = principal & interest + yearly tax ÷ 12 + yearly insurance ÷ 12
Worked example
A home costs 300,000. You put down 20% (60,000), so you borrow 240,000 at 6.5% for 30 years (360 payments). Monthly rate r = 0.065 ÷ 12 = 0.0054167.
- Principal and interest: 1,516.96 a month.
- Property tax 3,600 a year → 300 a month; insurance 1,500 a year → 125 a month.
- Total monthly payment: 1,941.96.
- Interest over the full 30 years: about 306,107, more than the amount borrowed.
15-year versus 30-year mortgage
The same 240,000 loan over 15 years at 6% costs 2,025.26 a month in principal and interest, about 508 more than the 30-year loan above, but total interest falls to about 124,546, less than half. Shorter terms usually also come with slightly lower rates. The trade-off is a higher payment that leaves less room in your budget.
The down payment
- A larger down payment means a smaller loan, a lower payment and less interest.
- In the US, putting down less than 20% on a conventional loan usually requires private mortgage insurance (PMI) until you reach about 20% equity. Other countries have similar mortgage insurance or higher rates for high loan-to-value loans.
- Keep some savings aside for closing costs, moving and repairs; buying a home costs more than the down payment.
How much house can you afford?
A widely used guideline from US lending is the 28/36 rule: housing costs (the monthly total above) should not exceed about 28% of gross monthly income, and all debt payments together no more than about 36%. For the example payment of 1,941.96, that suggests a gross income of roughly 6,935 a month or more. Lenders in other countries use their own affordability tests, often based on income multiples or stress-tested rates.
Things this calculator does not include
- Mortgage insurance (PMI), homeowners' association fees and closing costs.
- Rate changes on variable or adjustable-rate mortgages after any fixed period.
- Interest-only periods, offset accounts or country-specific rules on how interest is calculated (for example, some countries compound semi-annually by law).
Common mistakes
- Looking only at principal and interest. Tax and insurance can add hundreds per month.
- Forgetting the rate can change after an introductory fixed period.
- Stretching to the maximum the bank will lend. Leave room for repairs, rate rises and life changes.
Estimates only. Your lender's official offer and its APR are the figures to rely on.
How the rate changes a 240,000 loan over 30 years
| Rate | Principal & interest per month | Total interest |
|---|---|---|
| 5% | 1,288.37 | 223,814 |
| 6% | 1,438.92 | 278,012 |
| 6.5% | 1,516.96 | 306,107 |
| 7% | 1,596.73 | 334,821 |
Paying a little extra
Adding 100 a month to the 6.5% example payment clears the loan in about 302 months (25.2 years) instead of 360 and saves about 58,351 in interest, provided your lender allows overpayments without a fee.
How much you still owe after 10 years
Because early payments are mostly interest, the balance falls slowly at first. After 10 years of payments on the 6.5% example, about 203,463 of the original 240,000 is still outstanding. This matters if you plan to sell or refinance early.
Frequently asked questions
How is a mortgage payment calculated?
Principal and interest use the annuity formula P × r ÷ (1 − (1 + r)^−n). Many lenders then add 1/12 of the yearly property tax and insurance.
What is the monthly payment on a 240,000 mortgage at 6.5% for 30 years?
About 1,516.96 for principal and interest, before property tax and insurance.
Is a 15-year or 30-year mortgage better?
A 15-year loan costs much less interest in total but has a higher monthly payment. A 30-year loan is easier on the monthly budget but more expensive overall.
What is the 28/36 rule?
A US lending guideline: housing costs up to about 28% of gross monthly income and total debt payments up to about 36%.
How much does paying 100 extra a month save on a mortgage?
On 240,000 at 6.5% over 30 years, about 58,351 in interest, and the loan ends about 4.8 years early.
Why does my mortgage balance fall so slowly?
Early payments are mostly interest. On the 6.5% example, about 203,463 is still owed after 10 years.
Sources
- Consumer Financial Protection Bureau (US). Owning a Home: explore interest rates, loan estimates and closing costs.
- Fannie Mae Selling Guide: debt-to-income ratio requirements.
Last reviewed 5 October 2026. Results are estimates; see our disclaimer.