Quick answer: A fixed-rate mortgage payment is calculated with the amortization formula M = P × r(1 + r)n ÷ ((1 + r)n − 1), where P is the loan amount, r the monthly interest rate and n the number of monthly payments. A $300,000 loan at 6.5% for 30 years has a monthly principal and interest payment of $1,896.20 and costs $382,633 in interest over the full term. Property tax, insurance and PMI are added on top.
The mortgage payment formula
M = P × r(1 + r)^n ÷ ((1 + r)^n − 1)P = loan amount, r = annual rate ÷ 12, n = years × 12.- Convert the rate: 6.5% a year ÷ 12 = 0.541667% a month, or 0.00541667.
- Count the payments: 30 years × 12 = 360.
- Work out (1 + r)n: 1.00541667360 ≈ 6.9916.
- Apply the formula: 300,000 × 0.00541667 × 6.9916 ÷ (6.9916 − 1) = $1,896.20.
Calculate a payment
Monthly principal and interest
$1,896.20
How amortization splits each payment
Every payment is the same, but the split changes. Interest is charged on the remaining balance, so early payments are mostly interest and later payments are mostly principal.
| Month | Payment | Interest | Principal | Balance |
|---|---|---|---|---|
| 1 | $1,896.20 | $1,625.00 | $271.20 | $299,728.80 |
| 2 | $1,896.20 | $1,623.53 | $272.67 | $299,456.12 |
| 3 | $1,896.20 | $1,622.05 | $274.15 | $299,181.97 |
Interest for month 1 is $300,000 × 0.00541667 = $1,625.00. The rest of the $1,896.20 payment, $271.20, reduces the balance.
15-year vs 30-year, and the effect of the rate
| $300,000 loan | Monthly P&I | Total interest |
|---|---|---|
| 30 years at 6.0% | $1,798.65 | $347,515 |
| 30 years at 6.5% | $1,896.20 | $382,633 |
| 30 years at 7.0% | $1,995.91 | $418,527 |
| 15 years at 5.5% | $2,451.25 | $141,225 |
| 15 years at 6.5% | $2,613.32 | $170,398 |
Half a percentage point on a $300,000, 30-year loan changes the payment by about $100 a month and the total interest by about $35,000.
PITI: the full monthly housing payment
| Part | What it is | Typical way to estimate |
|---|---|---|
| Principal and interest | The formula above | Fixed for the loan term |
| Property tax | Local tax on the home’s assessed value | Annual bill ÷ 12 |
| Homeowners insurance | Required by the lender | Annual premium ÷ 12 |
| PMI | Private mortgage insurance on conventional loans with under 20% down | Often around 0.3% to 1.5% of the loan a year |
| HOA dues | Condo or community fees | Paid separately or included in budgeting |
Extra payments: what they save
$200 a month extra on the $300,000 loan at 6.5%
- Scheduled: 360 payments of $1,896.20, total interest $382,633.
- With $2,096.20 a month, the loan is paid off in 277 months, about 23 years 1 month.
- Total interest falls to about $279,185.
Result: About $103,449 saved and 7 years sooner
Mistakes when estimating a mortgage
- Using the annual rate in the formula. Divide by 12 first.
- Ignoring taxes and insurance. PITI can be hundreds more than principal and interest.
- Confusing APR and interest rate. APR includes fees and is for comparing offers; the payment uses the note rate.
- Forgetting PMI when the down payment is under 20% on a conventional loan.
Frequently asked questions
How is a monthly mortgage payment calculated?
With M = P × r(1+r)^n ÷ ((1+r)^n − 1), where P is the loan, r the monthly rate and n the number of payments. Taxes, insurance and PMI are added separately.
What is the payment on a $300,000 mortgage?
At 6.5% for 30 years, principal and interest is $1,896.20 a month. At 7% it is $1,995.91.
Why is most of my early payment interest?
Interest is charged on the remaining balance, which is highest at the start. As the balance falls, more of each payment goes to principal.
How much does a 15-year mortgage save?
On $300,000 at 6.5%, a 15-year term costs $170,398 in interest versus $382,633 for 30 years, but the payment is about $717 higher.
What does PITI mean?
Principal, interest, taxes and insurance: the full monthly housing payment most lenders use.
Do extra payments really help?
Yes. $200 extra a month on a $300,000, 6.5%, 30-year loan saves about $103,000 in interest and pays it off about 7 years early.
Keep going
Examples assume a fixed-rate, fully amortizing loan with monthly payments. Adjustable-rate loans, fees and lender rules change the numbers. This is general information, not financial advice.
Content Lead, Anchor AI Tools, California, USA. Spotted an error? Email hello@anchoraitools.com and it will be checked and corrected. See our editorial standards.