How to Calculate Your Monthly Mortgage Payment (Step by Step)
Understanding how your monthly mortgage payment is calculated can help you make smarter decisions when buying a home. In this guide, we'll break down the formula and walk through a real example.
The Mortgage Payment Formula
The standard formula for a fixed-rate mortgage payment is:
M = P × [r(1+r)^n] / [(1+r)^n − 1]
Where:
- M = Monthly payment
- P = Principal (loan amount)
- r = Monthly interest rate (annual rate ÷ 12)
- n = Total number of payments (years × 12)
Worked Example
Let's say you're borrowing $300,000 at 6.5% interest for 30 years:
- P = $300,000
- r = 0.065 ÷ 12 = 0.005417
- n = 30 × 12 = 360
Plugging into the formula: M = $300,000 × [0.005417 × (1.005417)^360] / [(1.005417)^360 − 1] = $1,896.20 per month.
Over 30 years, you'd pay a total of $682,633 — meaning $382,633 goes to interest alone. That's why even a small rate reduction matters enormously over the life of a loan.
How Interest Rate Affects Your Payment
On a $300,000 loan over 30 years, here's how different rates compare:
- 5.0%: $1,610/month ($279,767 total interest)
- 6.0%: $1,799/month ($347,515 total interest)
- 7.0%: $1,996/month ($418,527 total interest)
Each percentage point adds roughly $200/month and over $70,000 in total interest.
Tips to Lower Your Mortgage Payment
- Make a larger down payment to reduce the principal.
- Shop around — even 0.25% lower can save thousands.
- Choose a shorter term (15 years) for a lower rate, if you can afford higher payments.
- Improve your credit score before applying to qualify for better rates.
Try our free mortgage calculator to run your own numbers instantly.