A mortgage payment looks like one number,but it is built from several parts. Knowing how it is calculated helps you compare loans and avoid surprises.
What is in a mortgage payment?
- Principal: the part that reduces your loan balance
- Interest: what the lender charges for borrowing
- Taxes and insurance: often collected in the same payment through an escrow account
The formula
M = P × [r(1 + r)^n] ÷ [(1 + r)^n − 1]
- M is the monthly principal and interest payment
- P is the loan amount
- r is the monthly interest rate (annual rate ÷ 12)
- n is the total number of monthly payments
A worked example
You borrow $300,000 for 30 years at 6.5%. The monthly rate is 0.065 ÷ 12 = 0.005417, and n = 360. The result is a payment of about $1,896 per month.
Over 30 years you would pay roughly $682,600 in total, which means about $382,600 is interest.
Why early payments feel so slow
In month one, about $1,625 of that payment goes to interest and only about $271 reduces the balance. The split gradually shifts toward principal over time. This is called amortization.
15 years vs 30 years
Take the same $300,000 at 5.75% over 15 years. The payment rises to about $2,492, but total interest drops to roughly $148,500. You pay about $600 more each month and save more than $230,000 in interest. A shorter term often comes with a lower rate too.
Skip the formula
Enter your loan amount, rate, and term into a mortgage calculator to see your payment instantly. To view the full month-by-month breakdown, use an amortization calculator.
Ways to lower your payment
- Make a larger down payment.
- Improve your credit score before applying, since it affects your rate.
- Compare offers from several lenders.
- Make extra principal payments when you can.
This article is for general information only and is not financial advice.
