Mortgage Payment Calculator
Your estimated monthly mortgage payment is: —
Total Paid Over Life of Loan: —
Total Interest Paid: —
Understanding Your Mortgage Payment
A mortgage is a significant financial commitment, and understanding how your monthly payment is calculated is crucial for responsible homeownership. The primary components of your monthly mortgage payment are principal and interest (P&I).
Principal vs. Interest
- Principal: This is the actual amount of money you borrowed from the lender to purchase your home. Each payment you make reduces the outstanding principal balance.
- Interest: This is the cost of borrowing the money. It's calculated based on the remaining principal balance and the agreed-upon interest rate.
How the Monthly Payment is Calculated
The standard formula for calculating the fixed monthly payment (M) for a mortgage involves the principal loan amount (P), the monthly interest rate (r), and the total number of payments (n). The formula is derived from the amortization schedule:
M = P [ r(1 + r)^n ] / [ (1 + r)^n – 1]
Where:
- P = Principal loan amount
- r = Monthly interest rate (annual rate divided by 12)
- n = Total number of payments (loan term in years multiplied by 12)
Example Calculation
Let's say you take out a mortgage with the following terms:
- Loan Amount (Principal, P): $300,000
- Annual Interest Rate: 5%
- Loan Term: 30 years
First, we need to convert the annual interest rate to a monthly rate (r) and the loan term to the total number of payments (n):
- Monthly Interest Rate (r) = 5% / 12 = 0.05 / 12 = 0.00416667
- Total Number of Payments (n) = 30 years * 12 months/year = 360
Now, plugging these values into the formula:
M = 300000 [ 0.00416667(1 + 0.00416667)^360 ] / [ (1 + 0.00416667)^360 – 1]
This calculation results in a monthly principal and interest payment (M) of approximately $1,607.04.
Over the 30-year life of the loan, the total amount paid would be $1,607.04 * 360 = $578,534.40. The total interest paid would be $578,534.40 – $300,000 = $278,534.40.
Important Considerations
Keep in mind that this calculator provides an estimate for the principal and interest portion of your mortgage payment only. Your actual monthly housing expense will likely be higher due to:
- Property Taxes: Paid to your local government.
- Homeowners Insurance: Required by your lender to protect against damage.
- Private Mortgage Insurance (PMI): Often required if your down payment is less than 20%.
- Homeowners Association (HOA) Fees: If applicable.
These additional costs are often collected by your lender and paid on your behalf as part of an "escrow" payment, included in your total monthly housing bill.