How mortgage payments are calculated
A mortgage is a long-term amortizing loan: you borrow the home price minus your down payment, and repay it in equal monthly installments over the loan term, typically 15 or 30 years. Each payment covers both principal and interest ― early payments are mostly interest, and later payments pay down more principal. On top of principal and interest, most homeowners also budget for property tax and home insurance, which are often collected monthly and held in escrow by the lender.
15-year vs. 30-year mortgages
A 30-year mortgage spreads payments over more time, resulting in a lower monthly payment but significantly more interest paid over the life of the loan. A 15-year mortgage has a higher monthly payment but builds equity faster and can save tens of thousands of dollars in interest. The right choice depends on your monthly budget versus your long-term savings goals.
Frequently asked questions
How do you calculate a monthly mortgage payment?
It's based on the loan amount (price minus down payment), the annual interest rate, and the term in years, split into equal payments that cover interest and principal.
What is included in a mortgage payment besides principal and interest?
Many homeowners also pay property tax and home insurance monthly, sometimes collected in escrow. Loans with a down payment under 20% often add private mortgage insurance (PMI) too.
How does the loan term affect my payment?
A longer term (30 years) lowers the monthly payment but increases total interest. A shorter term (15 years) raises the payment but costs less overall.