Your monthly mortgage payment is set by three inputs: the loan amount (principal), the annual interest rate, and the loan term. For a fixed-rate, fully amortized mortgage the formula is M = P × [ r(1 + r)^n ] ÷ [ (1 + r)^n − 1 ], where P is the principal, r is the monthly interest rate (annual rate ÷ 12) and n is the number of monthly payments (years × 12).
Worked example: $300,000 at 6% for 30 years
- Convert the annual rate to a monthly one: 6% ÷ 12 = 0.005.
- Count the payments: 30 × 12 = 360.
- Compute the compounding factor: (1.005)^360 ≈ 6.0226.
- Plug in: M = 300,000 × [0.005 × 6.0226] ÷ [6.0226 − 1] = 300,000 × 0.030113 ÷ 5.0226.
- Result: $1,798.65 per month.
Over the full term you pay 1,798.65 × 360 = $647,515, of which $347,515 is interest — more than the amount you borrowed.
Principal and interest vs everything else
That $1,798.65 covers principal and interest (P&I) only. A real mortgage payment usually adds escrow and fees:
| Component | Typical monthly amount |
|---|---|
| Principal & interest | $1,798.65 |
| Property tax | $350 |
| Homeowners insurance | $125 |
| HOA dues | $50 |
| Total payment | $2,323.65 |
What changes your payment most
- Rate: at 7% the same $300,000 loan costs $1,996 per month — about $197 more every single month.
- Term: a 15-year loan at 6% costs $2,531 per month but cuts total interest to roughly $156,000, saving about $192,000.
- Down payment: putting 20% down lowers the principal and usually removes private mortgage insurance.
Three ways to lower the payment
- Shop rates: a 0.5-point difference on a $300,000 loan is roughly $95 a month.
- Extend the term: a 30-year loan always beats a 15-year loan on payment, at the cost of far more total interest.
- Increase the down payment: every $10,000 down removes about $60 a month at a 6% rate.
Biweekly payments — half a payment every two weeks — quietly create one extra full payment a year and can shave several years off a 30-year term without stretching your budget. Remember that the advertised rate is applied to the balance, not the home price, so a larger down payment shrinks the interest you pay on every payment. Run your own numbers in our mortgage calculator, then see how the split changes over the years in the amortization guide.