How to Calculate Mortgage Payments: A Complete Guide

$1,863

Monthly P&I on a $280K loan at 7%

$231K

Saved by choosing 15yr over 30yr

28%

Max housing cost vs gross income

📐 The Mortgage Payment Formula

Every fixed-rate mortgage uses the same amortization formula:

🔑

The Formula

M = P × [r(1+r)ⁿ] / [(1+r)ⁿ − 1]
Where M = monthly payment, P = loan principal, r = monthly rate (annual ÷ 12), n = total payments (years × 12)

🏠 A Real Example

Let's calculate the payment on a $350,000 home with 20% down at 7% interest for 30 years.

Component	Value
Loan amount (80%)	$280,000
Monthly rate (7% ÷ 12)	0.00583
Total payments (30 × 12)	360
Monthly P&I payment	$1,863

💰 But Wait — There's More Than P&I

Your actual monthly housing cost includes several components beyond P&I:

🏡

Total Monthly Cost Breakdown

Principal & Interest:$1,863

Property Tax (1.5%):$438

Insurance:$150

HOA (if applicable):$0–$500

Total realistic cost

$2,400–$2,800

/month

⚠️

Watch Out for PMI

If your down payment is less than 20%, you'll pay Private Mortgage Insurance (0.5–1% of loan/year). On $280K, that's $117–$233/month extra until you hit 20% equity.

⏰ How to Pay Less Interest

The biggest lever is loan term. On our $280,000 example:

30-year at 7%

$390,647

15-year at 6.5%

$159,319

💡

The Extra Payment Strategy

Adding just $200/month extra to a 30-year mortgage at 7% on $280K: pay off 7+ years early, save $100,000+ in interest, and build equity 40% faster. Extra payments go 100% to principal.

📊 The 28/36 Rule

Lenders use this guideline to determine affordability:

28%

Max housing costs vs gross income

36%

Max total debt vs gross income

🎯 Key Takeaways

Your real housing cost is 30-50% more than just P&I
A 15-year mortgage saves $231K+ in interest over 30 years
Extra payments of just $200/month save $100K+ in interest
Keep housing costs under 28% of gross income
Don't forget PMI if your down payment is under 20%