A mortgage payment has multiple components. Understanding each part helps you budget accurately and compare loan offers.
The Basic Payment Formula
M = P × [r(1+r)^n] / [(1+r)^n - 1]
- M = monthly payment (principal + interest only)
- P = loan amount
- r = monthly interest rate (annual rate ÷ 12)
- n = number of payments (years × 12)
Worked Example
Home price: $350,000 Down payment: 20% = $70,000 Loan amount: $280,000 Interest rate: 7% annual Term: 30 years
r = 7%/12 = 0.5833% = 0.005833
n = 30 × 12 = 360 payments
M = 280,000 × [0.005833 × (1.005833)^360] / [(1.005833)^360 - 1]
M = 280,000 × [0.005833 × 8.116] / [8.116 - 1]
M = 280,000 × 0.04734 / 7.116
M ≈ $1,862.67/month
Total Cost of the Loan
Total paid = $1,862.67 × 360 = $670,561
Interest paid = $670,561 - $280,000 = $390,561
You pay $390,561 in interest over 30 years on a $280,000 loan.
PITI: The Full Monthly Payment
The formula above only calculates principal and interest (P&I). Your actual monthly payment is usually higher:
| Component | Typical Amount |
|---|---|
| Principal & Interest | $1,862 |
| Property Tax (1%) | $292/month |
| Homeowner's Insurance | $100–200/month |
| PMI (if <20% down) | $100–200/month |
| HOA (if applicable) | varies |
| Total | $2,254–2,556 |
PMI: Private Mortgage Insurance
Required when your down payment is less than 20%. Costs 0.5–1.5% of loan amount annually.
Example: $280,000 loan at 1% PMI:
Annual PMI = $280,000 × 0.01 = $2,800
Monthly PMI = $2,800/12 = $233
PMI can be removed once you reach 20% equity.
15-Year vs. 30-Year Mortgage
| Feature | 30-Year | 15-Year |
|---|---|---|
| Monthly payment | $1,863 | $2,514 |
| Total interest | $390,561 | $172,520 |
| Interest saved | — | $218,041 |
The 15-year mortgage saves $218,000 in interest but costs $651 more per month.
Effect of Extra Payments
Paying $200/month extra on a 30-year mortgage at 7%:
- Pays off in ~24 years (saves 6 years)
- Saves ~$80,000 in interest
Use our Mortgage Calculator to calculate payments, total interest, amortisation schedule, and the impact of extra payments.