How to Calculate Your Mortgage Payment

When lenders talk about your "mortgage payment," they usually mean your total monthly housing cost, often abbreviated as PITI:

• P — Principal: The portion that reduces your loan balance
• I — Interest: The cost of borrowing the money
• T — Property Taxes: Collected monthly by your lender and paid to your county
• I — Homeowner's Insurance: Required by lenders to protect the property

The principal and interest portion is fixed on a fixed-rate mortgage. The taxes and insurance portion can change year to year as your local tax assessment or insurance premiums change.

Many borrowers are also required to pay PMI (Private Mortgage Insurance) if their down payment is less than 20% of the home's purchase price. This adds $50–$200/month on a typical loan and disappears once you reach 20% equity.

The monthly principal and interest (P&I) payment on a fixed-rate mortgage is calculated using this formula:

M = P × [r(1+r)^n] / [(1+r)^n − 1]

Where:

• M = Monthly payment
• P = Principal loan amount
• r = Monthly interest rate (annual rate ÷ 12)
• n = Total number of payments (years × 12)

Example: $350,000 loan at 7% for 30 years.

• r = 7% ÷ 12 = 0.5833% per month (0.005833)
• n = 30 × 12 = 360 payments
• M = $350,000 × [0.005833 × (1.005833)^360] / [(1.005833)^360 − 1]
• M ≈ $2,329/month

Over 30 years, you would pay $838,520 total — $350,000 in principal and $488,520 in interest.

The term length of your mortgage dramatically affects both your monthly payment and your total interest paid.

Example: $350,000 loan at 6.75% (typical spread)

• 30-year mortgage: ~$2,270/month — Total interest: ~$467,000
• 15-year mortgage: ~$3,100/month — Total interest: ~$208,000

The 15-year option saves roughly $259,000 in interest but costs $830 more per month. Whether that trade-off makes sense depends on your other financial goals — if you have high-interest debt (credit cards at 20%+), paying that off first almost always beats paying down a 6.75% mortgage early.

A common rule of thumb: choose a 30-year mortgage but make extra principal payments when you can. This gives you the flexibility of a lower required payment while still paying down the loan faster when cash flow allows.

Most first-time buyers underestimate the non-P&I costs of homeownership. Here are national averages to factor in:

Property Taxes: The national average is about 1.1% of home value per year, but it varies dramatically by state:

• Low-tax states: Hawaii (0.27%), Alabama (0.37%), Louisiana (0.51%)
• High-tax states: New Jersey (2.23%), Illinois (2.07%), Connecticut (1.97%)

On a $400,000 home, property taxes could range from $1,080/year (Hawaii) to $8,920/year (New Jersey) — a difference of $659/month in your PITI.

Homeowner's Insurance: Typically $1,200–$2,400/year nationally, or $100–$200/month. Higher in coastal and storm-prone areas (Florida, Texas, Louisiana).

PMI: If your down payment is under 20%, expect to add 0.5%–1.5% of the loan amount annually. On a $300,000 loan, that's $1,500–$4,500/year ($125–$375/month) until you reach 20% equity.

Lenders use two ratios to determine how much they will lend you:

Front-End Ratio (Housing Ratio): Your total monthly housing cost (PITI) should not exceed 28% of your gross monthly income.

Back-End Ratio (Total Debt Ratio): Your total monthly debt payments (housing + car + student loans + credit cards) should not exceed 43% of your gross monthly income.

Example: $80,000/year gross income = $6,667/month

• Max housing payment (28%): $1,867/month
• Max total debt (43%): $2,867/month

At 7% for 30 years, a $1,867 P&I payment corresponds to roughly a $280,000 loan. Add a $60,000 down payment, and you can afford approximately a $340,000 home — before taxes, insurance, and PMI.

Use our mortgage calculator to model specific scenarios, or try our mortgage affordability calculator for a personalized estimate based on your income and debts.