The mortgage payment formula calculates fixed monthly payments that amortize (pay off) a loan over its term. Each payment covers interest on the remaining balance plus a portion of principal. Early payments are mostly interest; later payments are mostly principal. Understanding this helps buyers make informed decisions about loan terms and down payments.
How to Use
Enter your loan details:
- Loan amount: The principal balance
- Interest rate: Annual percentage rate (APR)
- Loan term: Duration in years (15, 20, or 30)
The Formula
M = P × [r(1+r)^n] / [(1+r)^n - 1], where M = monthly payment, P = principal, r = monthly rate (annual/12), n = total payments (years × 12).
Mortgage Tips
- A 15-year mortgage has higher payments but saves thousands in interest
- Even small rate differences compound significantly over 30 years
- Extra payments toward principal can shorten the loan dramatically
- Consider total cost, not just monthly payment
Step-by-Step Instructions
- 1Enter the loan amount.
- 2Set the annual interest rate.
- 3Choose the loan term (years).
- 4View monthly payment and total cost.
- 5Check the amortization schedule.