How Mortgage Payments Are Calculated
A mortgage is a long-term loan used to purchase property. Your monthly payment covers both principal repayment and interest. Understanding how this payment is calculated helps you make informed decisions about loan amount, term, and interest rate. Even small changes in interest rate or loan term can save or cost tens of thousands of dollars over the life of a mortgage.
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Formula
Mortgage Calculator
Calculate monthly mortgage payment, total cost, and interest paid over the loan.
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Worked Example
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FAQs
What is amortization?
Amortization is the process of paying off a loan through regular payments over time. In the early years, most of your payment goes toward interest. Over time, a larger share goes toward principal as the outstanding balance decreases.
How does a larger down payment help?
A larger down payment reduces the loan amount, lowers monthly payments, and reduces total interest paid. It may also help you avoid Private Mortgage Insurance (PMI), which lenders require when the down payment is below 20%.
Should I choose a 15-year or 30-year mortgage?
A 15-year mortgage has higher monthly payments but saves significantly on total interest — often 50% or more compared to a 30-year mortgage. A 30-year mortgage has lower monthly payments but costs much more in total interest over the life of the loan.