How Mortgage Payments Are Calculated
A mortgage is a long-term loan used to buy a home, repaid in fixed monthly installments over 15 to 30 years. Each payment covers interest on the outstanding balance plus a portion of the principal, gradually building your equity in the property.
The Payment Formula
M = P × [r(1 + r)^n] / [(1 + r)^n - 1]
Where P is the loan amount (home price minus down payment), r is the monthly interest rate, and n is the number of monthly payments. Property tax, insurance, and HOA fees are added on top to give your total "PITI" payment.
Tips to Lower Your Mortgage Payment
- Put 20% down: avoids PMI and reduces the amount you borrow.
- Shop lenders: even a 0.25% lower rate saves thousands over 30 years.
- Consider a shorter term: 15-year loans carry lower rates and far less interest.
