Practical guide

How to Calculate Mortgage Payments

Break down monthly mortgage payment math, PITI, and the key assumptions behind long-term planning.

Quick Answer

Mortgage monthly payment uses the same amortization formula as other loans. Include property tax and insurance separately for the full housing payment (PITI).

Step-by-Step Method

Determine loan principal after down payment (home price minus down payment).
Convert annual mortgage rate to monthly decimal (rate ÷ 12 ÷ 100).
Set n to loan term in months (e.g. 30 years = 360 months).
Calculate payment with the amortization formula, then add tax and insurance for PITI.

Worked Example

$300,000 home, 20% down ($60,000), loan $240,000 at 6.5% for 30 years: monthly principal+interest ≈ $1,517. Add ~$400 tax/insurance → PITI ≈ $1,917.

Detailed Explanation

The gap between a 15-year and a 30-year mortgage is the single largest number in the whole decision. On the same principal and rate, the 30-year roughly doubles total interest paid — the monthly payment is lower, but you are borrowing the same money for twice as long, and early payments on a 30-year term barely touch the balance. Shorter terms usually also carry a lower rate, which widens the difference further. Run both before deciding, because the monthly figure alone conceals the comparison.

Principal and interest is not what leaves your account each month. Property tax and homeowner's insurance are typically collected into escrow alongside the loan payment, and where the down payment is under 20%, private mortgage insurance is added until equity reaches the threshold. Together these can add several hundred a month to the calculated payment. Lenders assess affordability on the full PITI figure, so budgeting on principal and interest alone is how people end up approved for a payment they cannot comfortably carry.

Two structural choices are worth modelling explicitly. Discount points are prepaid interest that lower the rate: divide the points cost by the monthly saving to get the break-even month, then ask honestly whether you will still hold the loan then. And if there is a realistic chance you sell or refinance within five to seven years, compare a fixed rate against an adjustable one — an ARM's lower initial rate may be worth more than the rate certainty you would be paying for and never use.

Use the Calculator

Run your real values in the interactive tool and review assumptions before taking action.

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FAQ

What is PITI?

Principal, Interest, Taxes, and Insurance — the full monthly housing payment lenders use for affordability checks.

How does down payment size affect mortgage cost?

Larger down payments reduce loan amount, may eliminate PMI, and lower total interest over the loan life.

Should I pay points to lower the rate?

Points are upfront fees to reduce rate. Divide the monthly savings into the points cost to estimate breakeven months.