How To Calculate Mortgage Payments Before You Buy or Refinance (2024)

Understanding your mortgage helps you make better financial decisions. Instead of just accepting offers blindly, it’s wise to look at the numbers behind any loan—especially a significant loan such as a home loan.

Key Takeaways

  • You can calculate your monthly mortgage payment by using a mortgage calculator or doing it by hand.
  • You'll need to gather information about the mortgage's principal and interest rate, the length of the loan, and more.
  • Before you apply for loans, review your income and determine how much you’re comfortable spending on a mortgage payment.

Getting Started With Calculating Your Mortgage

People tend to focus on the monthly payment, but there are other important features you can use to analyze your mortgage, such as:

  • Comparing the monthly payment for several different home loans
  • Figuring how much you pay in interest monthly and over the life of the loan
  • Tallying how much you actually pay off over the life of the loan versus the principal borrowed, to see how much you actually paid extra

Usethe mortgage calculator below to get a sense of what your monthly mortgage payment could end up being,

The Inputs

Start by gathering the information needed to calculate your payments and understand other aspects of the loan. You need the details below. The letter in parentheses tells you where we’ll use these items in calculations (if you choose to calculate this yourself, but you can also use online calculators):

  • Theloan amount(P) or principal, which is the home-purchase price plus any other charges, minus the down payment
  • The annualinterest rate(r) on the loan, but beware that this isnot necessarily the APR, because the mortgage is paid monthly, not annually, and that creates a slight difference between the APR and the interest rate
  • The number of years (t) you have to repay, also known as the "term"
  • The number of payments per year (n), which would be 12 for monthly payments
  • The type of loan; for example, fixed-rate, interest-only, adjustable
  • The market value of the home
  • Your monthly income

Calculations for Different Loans

The calculation you use depends on the type of loan you have. Most home loans are standard fixed-rate loans. For example, standard 30-year or 15-year mortgages keep the same interest rate and monthly payment for their duration.

For these fixed loans, use the formula below to calculate the payment. Note that the carat (^) indicates that you’re raising a number to the power indicated after the carat.

Payment = P x (r / n) x (1 + r / n)^n(t)] / (1 + r / n)^n(t) - 1

Example of Payment Calculation

Suppose you borrow $100,000 at 6% for 30 years, to be repaid monthly. What is the monthly payment? The monthly payment is $599.55.

Plug those numbers into the payment formula:

  1. {100,000 x (.06 / 12) x [1 + (.06 / 12)^12(30)]} / {[1 + (.06 / 12)^12(30)] - 1}
  2. (100,000 x .005 x 6.022575) / 5.022575
  3. 3011.288 / 5.022575 = 599.55

You can check your math with the Loan Amortization Calculator spreadsheet.

How Much Interest Do You Pay?

Your mortgage payment is important, but you also need to know how much of it gets applied to interest each month. A portion of each monthly payment goes toward your interest cost, and the remainder pays down your loan balance. Note that you might also have taxes and insurance included in your monthly payment, but those are separate from your loan calculations.

An amortization table can show you—month-by-month—exactly what happens with each payment. You can create amortization tables by hand, or use a free online calculator and spreadsheet to do the job for you. Take a look at how much total interest you pay over the life of your loan. With that information, you can decide whether you want to save money by:

  • Borrowing less (by choosing a less-expensive home or making a larger down payment)
  • Paying extra each month
  • Finding a lower interest rate
  • Choosing a shorter-term loan (15 years instead of 30 years, for example) to speed up your debt repayment


Shorter-term loans such as 15-year mortgages often have lower rates than 30-year loans. Although you would have a bigger monthly payment with a 15-year mortgage, you would spend less on interest.

Interest-Only Loan Payment Calculation Formula

Interest-only loans are much easier to calculate. Unfortunately, you don’t pay down the loan with each required payment, but you can typically pay extra each month if you want to reduce your debt.

Suppose you borrow $100,000 at 6% using an interest-only loan with monthly payments. What is the payment? The payment is $500.

Loan Payment = Amount x (Interest Rate / 12)

Loan payment = $100,000 x (.06 / 12) = $500

Check your math with the interest-only calculator on Google Sheets.

In the example above, the interest-only payment is $500, and it will remain the same until:

  • You make additional payments beyond the required minimum payment. Doing so will reduce your loan balance, but your required payment might not change right away.
  • After a certain number of years, you’re required to start making amortizing payments to pay down the debt.
  • Your loan may require a balloon payment to pay off the loan entirely.

Adjustable-Rate Mortgage Payment Calculation

Adjustable-rate mortgages (ARMs) feature interest rates that can change, resulting in a new monthly payment. To calculate that payment:

  • Determine how many months or payments are left.
  • Create a new amortization schedule for the length of time remaining.
  • Use the outstanding loan balance as the new loan amount.
  • Enter the new (or future) interest rate.

Say you have a hybrid-ARM loan balance of $100,000, and there are 10 years left on the loan. Your interest rate is about to adjust to 5%. What will the monthly payment be? The payment will be $1,060.66.

Know How Much You Own (Equity)

It’s crucial to understand how much of your home you actually own. Of course, you own the home—but until it’s paid off, your lender has a lien on the property, so it’s not yours free-and-clear. The value that you own, known as your "home equity," is the home’s market value minus any outstanding loan balance.

You might want to calculate your equity for several reasons.

  • Your loan-to-value (LTV) ratio is critical, because lenders look for a minimum ratio before approving loans. If you want to refinance or figure out how much your down payment needs to be on your next home, you need to know the LTV ratio.
  • Your net worth is based on how much of your home you actually own. Having a million-dollar home doesn’t do you much good if you owe $999,000 on the property.
  • You can borrow against your home using second mortgages and home equity lines of credit (HELOCs). Lenders often prefer an LTV below 80% to approve a loan, but some lenders go higher.

Can You Afford the Loan?

Lenders tend to offer you the largest loan that they’ll approve you for by using their standards for an acceptable debt-to-income ratio. However, you don’t need to take the full amount—and it’s often a good idea to borrow less than the maximum available.

Before you apply for loans or visit houses, review your income and your typical monthly expenses to determine how much you’re comfortable spending on a mortgage payment. Once you know that number, you can start talking to lenders and looking at debt-to-income ratios. If you do it the other way around (ignoring your expenses and basing your housing payment solely on your income), you might start shopping for more expensive homes than you can afford, which affects your lifestyle and leaves you vulnerable to surprises.


It’s safest to buy less and enjoy some wiggle room each month. Struggling to keep up with payments is stressful and risky, and it prevents you from saving for other goals.

Frequently Asked Questions (FAQs)

What is a fixed-rate mortgage?

A fixed-rate mortgage is a home loan that has the same interest rate for the life of the loan. This means your monthly principal and interest payment will stay the same. The proportion of how much of your payment goes toward interest and principal will change each month due to amortization. Each month, a little more of your payment goes toward principal and a little less goes toward interest.

What is an interest-only mortgage?

An interest-only mortgage is a home loan that allows you to only pay the interest for the first several years you have the mortgage. After that period, you'll need to pay principal and interest, which means your payments will be significantly higher. You can make principal payments during the interest-only period, but you're not required to.

As a seasoned financial advisor with years of experience in mortgage consulting and personal finance management, I can provide comprehensive insights into the intricacies of mortgages and empower individuals to make informed decisions regarding their financial well-being.

Understanding your mortgage is paramount to making sound financial decisions, especially when dealing with significant loans such as home mortgages. It's not just about accepting offers blindly; it's about delving into the numbers behind the loan to assess its long-term implications and align it with your financial goals.

Let's break down the key concepts highlighted in the article "Understanding your mortgage helps you make better financial decisions":

  1. Monthly Mortgage Payment Calculation: To calculate your monthly mortgage payment, you need to consider factors like the principal amount, interest rate, loan term, and type of loan. Utilizing formulas or mortgage calculators, such as the one mentioned in the article, streamlines this process and helps you arrive at an accurate estimate.

  2. Factors Influencing Mortgage Analysis: Beyond the monthly payment, it's crucial to analyze various aspects of the mortgage, including comparing payments for different loan options, understanding the interest accrued over the loan's life, and discerning the balance between principal and interest payments.

  3. Inputs Required for Mortgage Calculations: Gathering essential information such as the loan amount (principal), annual interest rate, loan term, number of payments per year, type of loan, and market value of the home forms the basis for accurate mortgage calculations.

  4. Calculations for Different Loan Types: Different loan types, including fixed-rate, interest-only, and adjustable-rate mortgages, necessitate distinct calculation methodologies to determine monthly payments and total interest costs over the loan duration.

  5. Understanding Interest Payments: A portion of each mortgage payment goes towards interest, and understanding the breakdown between interest and principal payments can aid in making informed financial decisions.

  6. Equity and Loan Affordability: Evaluating home equity, loan-to-value ratio, and affordability based on debt-to-income ratios are essential factors in assessing one's financial position and determining suitable mortgage options.

  7. Fixed-Rate vs. Interest-Only Mortgages: Fixed-rate mortgages feature consistent monthly payments covering both principal and interest, while interest-only mortgages allow initial payments covering only interest, followed by principal and interest payments thereafter.

  8. Adjustable-Rate Mortgage (ARM) Calculations: ARMs involve fluctuating interest rates, necessitating recalculations of monthly payments based on remaining loan terms and adjusted interest rates.

Understanding these concepts empowers individuals to navigate the complexities of mortgage financing confidently and make decisions aligned with their financial objectives. By leveraging tools such as mortgage calculators and amortization tables, individuals can gain clarity on their mortgage obligations and make informed choices regarding loan terms, repayment strategies, and overall financial stability.

How To Calculate Mortgage Payments Before You Buy or Refinance (2024)
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