How to Calculate a Mortgage Payment Step by Step

The math that goes into a monthly mortgage payment might seem complex — but knowing how it works gives you serious financial power. In fact, learning how to calculate a mortgage payment is a big step toward getting mortgage-ready. It helps you estimate how much home you can afford so you can make an informed buying decision.  

The good news? Online calculators can do the math for you. That said, knowing your way around the numbers can give you an edge when comparing loan options and understanding what affects your payment. 

We’ll go over what you need to know about calculating a mortgage payment, including the formula to use and how different loan details dictate what you’ll pay. 

Key takeaways 

• Calculating a mortgage payment involves using either a mathematical formula or a mortgage calculator to find the total monthly cost of the mortgage. 
• You’ll need specific loan details, including the loan amount, loan term, and interest rate. 
• Other factors that affect how you calculate a mortgage payment include taxes, homeowners insurance, mortgage insurance, and, if applicable, Homeowners Association (HOA) fees. 
• By adjusting each variable, you may find ways to lower your monthly mortgage payment to better fit your budget. 

1. Gather information about the home and loans you’re interested in 

To figure out the monthly cost of getting a loan to buy a home, you’ll need a few key details: the principal (loan amount), interest rate, and length of the loan term. These factors each influence the monthly cost. Here’s a breakdown of each component: 

• Principal: The principal is the amount of money you’re borrowing. For example, if you want to buy a $400,000 home and you have a $50,000 down payment, you’ll need to borrow $350,000. The larger the principal amount, the more you’ll have to repay each month. 
• Interest: The interest is what it costs you to borrow that money. It’s generally expressed as a rate, such as 7%. The higher the interest rate, the more you’ll have to pay each month. Interest rates change daily and depend on factors such as economic conditions and your credit history. Knowing how interest rates work can help you spot a low rate when it’s time to buy.  
• Term length: The repayment period, or term length, is how long you have to pay back what you owe. Shorter loan terms may have higher monthly payments because you’re compressing the repayment schedule. Longer-term loans may have lower monthly payments. 

You’ll need these details to get an accurate estimate when you calculate a monthly mortgage payment. 

2. Use the mortgage payment formula 

Without a calculator, one way to calculate your base mortgage payment is by using a formula and plugging in your loan details manually. 

Here’s the mathematical formula for calculating a fixed-rate mortgage payment (minus taxes, insurance, and HOA fees; we’ll cover that later): 

M = P [ r(1 + r)^N ] / [ (1 + r)^N − 1] 

Here’s what each symbol means:  

M	Total monthly mortgage payment
P	Principal
r	Monthly interest rate. Find this by taking the annual mortgage rate and dividing by 12. For example, if your interest rate is 6%, your monthly rate would be 0.005 (0.06 / 12 = 0.005).
n	Total number of payments. Find this by taking the number of years of the loan term and multiplying by 12. For example, a 25-year fixed term would have 300 total payments (25 x 12 = 300).

To manually calculate your monthly mortgage payment, you’d replace each symbol in the formula with the appropriate number and then calculate the mortgage payment. 

Example of how to calculate monthly payments with the mortgage payment formula 

Here’s an example of how to use the formula above to calculate a base monthly mortgage payment. Let’s say you’re borrowing $350,000 at 7% interest for 30 years.  

First, find the monthly interest rate and the total number of payments so you have everything you need for the formula.  

P (Principal)	350,000
r (Monthly interest rate)	0.00583333 (the result of 0.07 / 12)
n (Total number of payments)	360 (the result of 30 years x 12 months in a year)

Now, you can plug each number into the mortgage payment formula and solve: 

Step 1: Plug in the monthly interest rate “r” and solve inside parentheses.  

• M = P [ 0.00583333 (1 + 0.00583333) ⁿ ] / [ (1 + 0.00583333) ⁿ – 1] 
• M = P [ 0.00583333 (1.00583333) ⁿ ] / [ (1.00583333) ⁿ – 1] 

Step 2: Plug in the total number of payments “n” and calculate the exponents. 

• M = P [ 0.00583333 (1.00583333) ³⁶⁰ ] / [ (.00583333) ³⁶⁰ – 1] 
• M = P [0.00583333 (8.11648779)] / [8.11648779 – 1] 

Step 3: Simplify the equation. 

• M = P [0.00583333 (8.11648779)] / [8.11648779 – 1] 
• M = P (0.04734615) / (7.11648779) 

Step 4: Plug in the principal “P” and solve. 

• M = 350,000 (0.04734615) / (7.11648779) 
• M = 2328.55770838 

Rounded to the nearest penny, your base monthly mortgage payment using this formula would be $2,328.56. 

3. Add taxes, insurance, and HOA fees 

Your base mortgage payment only covers the loan’s principal and interest — but there are other important costs that often get rolled into your monthly bill. To get a more accurate calculation of your full mortgage payment, be sure to account for these extras. 

• Property taxes: Many mortgage servicers collect property taxes as part of your monthly payment and pay them on your behalf. This setup — called escrow — helps you avoid surprise bills by spreading out the cost over the year. You can find this rate from your local real estate tax collector.  
• Homeowners insurance: Lenders typically require homeowners insurance, and some servicers collect this money in an escrow account and send it to the insurer on your behalf. The average homeowners insurance premium is about $200 per month, according to the National Association of REALTORS®, but the figure can vary wildly based on where you live and the characteristics of the home among other things. 
• Mortgage insurance: This type of insurance protects the lender from the risk that you might default on the loan. You may have to pay private mortgage insurance (PMI) if you put down less than 20%. Mortgage insurance premiums (MIP) are similar to PMI, and they are a requirement for FHA loans. MIP usually costs between 0.45% to 1.05% of the loan amount, split into monthly payments. 
• HOA fees: Buying in a community with a Homeowners Association? Expect a monthly HOA fee, which helps cover the cost of things like landscaping, shared utilities, amenities, and maintenance. Although it’s rare, some mortgage servicers collect this fee in an escrow account and pay the HOA on your behalf. To find out the exact amount of your HOA fee, check the property listing or HOA documents, or ask your real estate agent. 

Does your monthly mortgage payment make sense for your budget? 

Knowing how to calculate a monthly mortgage payment is one thing; knowing whether that payment fits your budget is another.  

A good rule of thumb is to use the “28/36 rule.” This guideline says you should spend no more than 28% of your gross monthly income on your housing payment, and no more than 36% on your combined monthly debts (such as student loans or a car payment).  

If your monthly gross income is $5,500, here’s what your 28/26 limits would look like: 

• Housing costs: 28%, or $1,540 monthly 
• Overall debt: 36%, or $1,980 monthly 

While sticking to the 28/36 rule can be tough in areas with high costs of living, it’s a good benchmark for knowing whether a payment will fit comfortably into your budget. 

What if the mortgage payment is too high? 

Sometimes, even after running the numbers, your monthly mortgage payment comes out higher than expected. Several factors can push your payment up, including: 

• Low credit score: A lower score often means a higher interest rate, which increases your monthly cost. 
• High interest rate: Higher interest rates increase the amount of interest you owe, raising your payment. 
• Low down payment: Small down payments mean you’ll have to borrow more than you would with a larger down payment. They can also result in higher interest rates. 
• Short loan term: While a shorter loan term can help save on interest by compressing your repayment timeline, it also increases the size of the payment. 

If you’ve calculated your monthly mortgage payment and it’s simply too high for you, there are some tactics you can use to lower it. 

First, make sure you consider all your mortgage loan options. There may be a different loan type — like an FHA or adjustable-rate mortgage (ARM) loan — that’s more affordable, perhaps with a lower rate or longer loan term. 

Also consider a lower-priced home or a bigger down payment. That way, you borrow less and lower your monthly payment.  

And perhaps the most impactful way to lower your costs is by shopping around. Not all lenders offer the same rates, terms, or programs. Comparing offers is one of the most powerful ways to save. 

Secure a low-rate mortgage today 

A mortgage calculator is a great tool to test out different loan amounts, terms, and interest rates — so you can see how each one affects your monthly cost. Once you’ve estimated your monthly payment, the next step is exploring loan options that fit your financial goals. 

Whether you’re looking for a purchase loan or a refinance, apply with AmeriSave for a fast application process and low mortgage rates. We offer many different types of home loans, including fixed-rate and adjustable-rate loans, cash-out refinances, home equity lines of credit (HELOC), conventional loans, and VA, FHA, and USDA loans.  

Get preapproved online to see your personalized loan amount and rate. Get started today. 

Frequently asked questions 

What do I need to calculate my mortgage payment? 

To calculate your monthly mortgage payment, you’ll need to know the loan amount, loan term, and interest rate, at a minimum. For a more accurate estimate, include costs for home insurance, mortgage insurance, taxes, and HOA fees, too.  

How does interest rate affect my mortgage payment? 

The mortgage interest rate affects how much you’ll pay in interest in addition to the principal amount borrowed. The higher the interest rate, the more it costs to borrow. All else being equal, a low interest rate can help lower your mortgage payment, while a higher interest rate will raise it. 

What is the formula for calculating mortgage payments? 

To calculate a mortgage payment manually instead of using a mortgage calculator, use this formula: M = P [ r(1 + r)ⁿ ] / [ (1 + r)ⁿ − 1], where M is the monthly payment, P is the principal, r is the monthly interest rate (annual rate divided by 12), and n is the number of monthly payments in the loan term.