What goes into a monthly mortgage payment
The part that repays the loan is principal and interest. It uses the loan payment formula: payment = P × r × (1 + r)^n ÷ ((1 + r)^n − 1), where P is the loan (price minus down payment), r is the yearly rate ÷ 12 ÷ 100 and n is the number of monthly payments.
Many homeowners also pay other costs each month, often collected with the mortgage payment. Property tax and home insurance are the usual ones, and some loans add mortgage insurance or association fees. Rules and amounts differ widely by country, region and lender, so this calculator has no built-in figures. You type in what applies to you.
For a 300,000 home with 20% down (a 240,000 loan) at 6.5% over 30 years, principal and interest is 1,516.96. Add 3,600 a year of property tax (300 a month) and 1,200 a year of insurance (100 a month) and the total is 1,916.96 a month. About a fifth of that is not going to the lender at all, which is why the total matters when you work out what you can afford.
How the down payment, rate and term change the cost
Down payment. A larger down payment means a smaller loan and less interest. On the 300,000 home at 6.5% over 30 years, 10% down is a 270,000 loan and about 344,373 of interest. 20% down is a 240,000 loan and about 306,109.
Rate. On the 240,000 loan over 30 years, total interest is about 223,815 at 5%, about 306,109 at 6.5% and about 334,818 at 7%. Small differences in the rate add up over 360 payments.
Term. A shorter term costs more each month and far less overall. The 240,000 loan at 6.5% is 2,090.66 a month over 15 years with about 136,318 of interest, against 1,516.96 a month and about 306,109 over 30 years. The table under the answer shows 10 to 30 years side by side.
Why early payments are mostly interest
Interest is charged on the balance, which is at its largest at the start. In month 1 of the 240,000 loan, interest is 1,300.00, so only 216.96 of the 1,516.96 payment reduces the loan. The share of principal grows every month, which is why the schedule shows a balance that falls slowly at first and faster near the end.
It also explains why extra payments work best early. An extra 200 a month on this loan finishes it after 262 payments, 21 years and 10 months, and saves about 96,271 of interest. Check your loan terms first: some lenders limit extra payments or charge a fee, and some need you to say the money should go to principal.
What this calculator does not include
- Closing costs and fees paid when you buy, which are not part of the monthly payment.
- Rates that change. For an adjustable rate, work out each new rate as a fresh loan with the balance that remains.
- Rising taxes and insurance. Those costs are held steady. Real bills usually change from year to year.
- Other ways of charging interest. Some lenders compound daily or every half year, or use the exact number of days in the first month. Your payment can differ by a little.
- Other payment schedules. Payments are monthly. Weekly and fortnightly plans are not worked out here.
For a loan that is not a home loan, the loan calculator works from a loan amount and a term, and can also find how much you could borrow for a monthly payment you choose.