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Disclaimer: Results are estimates for educational purposes only and should not be considered financial advice. Consult a licensed financial advisor before making investment, mortgage, or major financial decisions.
A mortgage payment is calculated using the standard amortization formula, which ensures that each payment covers both interest and a portion of the principal, so the loan is fully paid off at the end of the term. The monthly payment stays fixed for the life of a fixed-rate mortgage, but the split between interest and principal shifts every month.
Mortgage Payment Formula
M = P × [r(1 + r)ⁿ] / [(1 + r)ⁿ – 1]
M = monthly payment
P = loan principal (home price minus down payment)
r = monthly interest rate (annual rate ÷ 12)
n = total number of payments (years × 12)
Home price: $400,000 | Down payment: 20% ($80,000) | Loan amount: $320,000 | Interest rate: 6.5% | Term: 30 years
Monthly rate r = 6.5% ÷ 12 = 0.5417%. Total payments n = 360. M = $320,000 × [0.005417 × (1.005417)³⁶⁰] / [(1.005417)³⁶⁰ – 1] = $2,023/month. Over 30 years you pay $728,280 total — $320,000 principal and $408,280 in interest.
A good mortgage rate depends on the current market environment. As of 2024–2025, rates for a 30-year fixed mortgage range from 6.5%–7.5%. Borrowers with excellent credit (760+), a 20% down payment, and strong income qualify for the lowest rates. Rates below the current 10-year Treasury yield plus 1.5% are generally considered competitive.
The standard guideline is the 28/36 rule: your monthly mortgage payment should not exceed 28% of your gross monthly income, and total debt payments should not exceed 36%. For a $80,000 annual salary ($6,667/month), the maximum mortgage payment is approximately $1,867/month, which supports a home price of roughly $280,000–$320,000 at current rates.
Private Mortgage Insurance (PMI) is required when your down payment is less than 20% of the home price. PMI typically costs 0.5%–1.5% of the loan amount per year. You can request PMI removal once your loan balance reaches 80% of the original home value (by paying down the mortgage or via appreciation). Lenders are legally required to cancel PMI when your balance reaches 78% of the original purchase price.
A 15-year mortgage has higher monthly payments but a lower interest rate and dramatically less total interest paid. For example, a $300,000 loan at 6.5% over 30 years costs $382,000 in interest. The same loan over 15 years at 5.9% costs $155,000 in interest — a saving of $227,000. Choose a 15-year if you can comfortably afford the higher payments; choose a 30-year if you need payment flexibility.
An amortization schedule is a complete table showing every monthly payment over the life of your loan, broken down into principal and interest components. In the early years of a mortgage, most of your payment goes toward interest. Over time, this shifts — by year 20 of a 30-year mortgage, the majority of each payment reduces your principal balance.
Every additional dollar of down payment reduces your loan principal, which lowers both your monthly payment and total interest paid. Putting 20% down also eliminates PMI, saving an additional $100–$300/month on a typical home. On a $400,000 home, increasing your down payment from 10% ($40,000) to 20% ($80,000) reduces monthly payments by roughly $250 and saves over $60,000 in total interest.
A fixed-rate mortgage offers predictable payments for the entire loan term, making it ideal if you plan to stay in the home long-term or if you expect rates to rise. An adjustable-rate mortgage (ARM) starts with a lower rate for a fixed period (typically 5 or 7 years) then adjusts annually. ARMs make sense if you plan to sell or refinance before the adjustment period ends, or if you expect rates to fall.
Closing costs typically range from 2%–5% of the loan amount. On a $300,000 mortgage, that means $6,000–$15,000 due at closing. Closing costs include lender fees, appraisal, title insurance, prepaid taxes and insurance, and attorney fees. Some lenders offer "no-closing-cost" mortgages in exchange for a slightly higher interest rate.
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