How is a mortgage payment calculated?
Your monthly principal and interest uses the standard amortization formula. The result depends on three things: your loan amount (home price minus down payment), your annual interest rate divided into a monthly rate, and your total number of payments.
M = P × [r(1+r)^n] ÷ [(1+r)^n − 1]
M = payment · P = loan amount · r = monthly rate · n = payments
For a $320,000 loan at 6.75% for 30 years: monthly rate = 0.5625%, total payments = 360. Monthly P&I = approximately $2,075. Add taxes and insurance to get your true PITI payment.
What affects your mortgage payment?
- Loan amount — the biggest driver. A $50,000 difference in purchase price changes your payment by roughly $300–$350/month at current rates.
- Interest rate — even 0.5% matters. On a $300,000 loan, it means roughly $90/month and over $32,000 in total interest.
- Loan term — a 15-year mortgage builds equity twice as fast and costs far less in total interest, but the monthly payment is about 40% higher than a 30-year.
- Property taxes — these vary widely by location, from under 0.3% to over 2.5% of home value annually.
- PMI — if your down payment is below 20%, add $50–$200/month for private mortgage insurance.
Frequently asked questions
How is a monthly mortgage payment calculated?
Your monthly payment uses the amortization formula: M = P[r(1+r)^n]/[(1+r)^n-1]. P is the loan amount, r is the monthly rate (APR÷12), and n is total payments. The result is your principal and interest portion.
What does PITI mean?
PITI stands for Principal, Interest, Taxes, and Insurance — the four components of a complete monthly mortgage payment. Lenders often quote only P&I; PITI is your true monthly housing cost.
What percentage of income should my mortgage be?
The 28% rule says housing costs should not exceed 28% of gross monthly income. On $80,000/year ($6,667/month), that is a maximum of $1,867/month including taxes and insurance.
Is a 15-year or 30-year mortgage better?
A 15-year mortgage costs more monthly but saves dramatically on total interest and builds equity faster. A 30-year provides lower payments and more flexibility. Choose based on your income stability and how long you plan to stay.