How your mortgage payment is calculated
The core of the payment, principal and interest, comes from the standard loan formula:
P is the loan amount, i the monthly rate (yearly rate ÷ 12) and n the number of monthly payments. A $400,000 home with $80,000 down is a $320,000 loan. At 6.5% for 30 years: i = 0.065 ÷ 12, n = 360, so M = $2,022.62 a month. Over 30 years that adds up to $408,142 in interest.
Most lenders also collect property tax and home insurance each month in escrow, so your real payment is higher. Here, 1.1% tax on $400,000 adds about $366.67 a month and $1,800 a year of insurance adds $150.
Rates, terms and what they cost
| $320,000 loan | Monthly principal and interest | Total interest |
|---|---|---|
| 30 years at 6.5% | $2,022.62 | $408,142 |
| 30 years at 7.5% | $2,237.49 | $485,495 |
| 15 years at 6.5% | $2,787.54 | $181,758 |
A 15-year loan costs more each month but saves a huge amount of interest. In real life 15-year rates are usually a bit lower than 30-year rates too, which widens the gap.
What is PMI?
Private mortgage insurance protects the lender when you put down less than 20% on a conventional loan. It typically costs about 0.3% to 1.5% of the loan a year. By law (the Homeowners Protection Act), it must end automatically once your balance is scheduled to reach 78% of the home's original value, and you can ask to drop it at 80%. This calculator removes it at 78%. FHA loans have their own mortgage insurance with different rules.
Extra payments
Anything you pay on top of the required amount goes straight to the principal, so the next month's interest is smaller. Even $100 a month can take years off a 30-year loan; try it in the extra payment box.
This is an estimate. Your lender's quote will include your actual rate, local taxes, insurance and fees. It isn't financial advice.