How the math works
A fixed-rate mortgage is repaid with equal monthly payments calculated so that the loan reaches exactly zero on its final month. The standard amortization formula is:
M = P × r ÷ (1 − (1 + r)−n)
where P is the amount you borrow, r is the monthly interest rate (the annual rate divided by 12), and n is the number of monthly payments (the term in years times 12).
A worked example
Take a $400,000 home with 20% down. You borrow $320,000. At 6.5% for 30 years, the formula gives a monthly payment of $2,022.62. In the first month, interest is $320,000 × (6.5% ÷ 12) = $1,733.33, so only $289.29 reduces the balance. By the final years the proportions have flipped. Over the full term you pay about $408,142 in interest — more than the original loan — which is why the extra-payment field above is worth experimenting with.
What lenders add on top of principal & interest
The payment most people actually send each month is PITI: Principal, Interest, Taxes, and Insurance. Property tax and homeowners insurance are usually collected monthly into an escrow account and paid by the lender on your behalf. If your down payment is under 20%, most conventional loans also add private mortgage insurance (PMI) until your equity reaches 20% — we're building a dedicated PMI removal calculator for exactly that question.
Frequently asked questions
How is a mortgage payment calculated?
A fixed-rate mortgage payment uses the amortization formula: M = P × r ÷ (1 − (1 + r)⁻ⁿ), where P is the loan amount, r is the monthly interest rate (annual rate ÷ 12), and n is the total number of monthly payments. Every payment is the same size, but early payments are mostly interest and later payments are mostly principal.
What does an amortization schedule show?
It lists every payment over the life of the loan, splitting each one into interest (the cost of borrowing that month) and principal (the part that reduces your balance). It also shows the remaining balance after each payment, so you can see exactly when the loan will be paid off.
How much do extra principal payments actually save?
Because interest is charged on the remaining balance, every extra dollar of principal removes all the future interest that dollar would have generated. On a $320,000 loan at 6.5% for 30 years, an extra $200 per month saves roughly $105,000 in interest and pays the loan off about 6.5 years early. Use the extra payment field in the calculator to see your own numbers.
Does this calculator include property taxes and insurance?
Yes, optionally. Expand "Taxes, insurance & extra payments" and enter your yearly property tax and homeowners insurance. The calculator adds one-twelfth of each to your monthly payment, which is how most lenders collect them through an escrow account.
Why is so much of my early payment interest?
Interest each month equals your current balance times the monthly rate. At the start, the balance is at its largest, so the interest share is at its largest too. As principal is paid down, the interest portion shrinks and the principal portion grows — the crossover typically happens years into the loan, which is exactly what the chart on this page shows.