The standard repayment mortgage formula
For a fixed-rate repayment mortgage, lenders calculate a monthly principal-and-interest payment designed to repay the loan by the end of the term. The inputs are the amount borrowed, the annual interest rate and the number of monthly payments.
The formula is: M = P × r(1+r)^n ÷ ((1+r)^n − 1), where M is the monthly payment, P is the loan amount, r is the monthly interest rate and n is the total number of payments.
Worked example
A $300,000 loan at 6.5% over 30 years has a monthly principal-and-interest payment of about $1,896. This does not mean $1,896 is the entire housing bill. Property taxes, homeowners insurance and possibly mortgage insurance can be collected through escrow and added to the monthly amount.
| Input | Example |
|---|---|
| Loan amount | $300,000 |
| Interest rate | 6.5% |
| Term | 30 years |
| Principal and interest | About $1,896/month |
Why the payment changes
A higher rate raises the interest charged on the balance. A longer term lowers the required monthly payment but usually raises total interest because the debt remains outstanding for longer. A larger down payment reduces the loan amount. These inputs interact, so compare complete scenarios rather than looking at the rate alone.
Principal and interest versus total payment
The principal-and-interest payment repays the loan. The total monthly payment often includes property tax and insurance, plus private mortgage insurance or other loan costs when applicable. The Consumer Financial Protection Bureau describes this as principal + interest + mortgage insurance + escrow for taxes and homeowners insurance.
Questions to ask before relying on an estimate
- Is the rate fixed for the whole term or only an introductory period?
- Does the quote include taxes, insurance and mortgage insurance?
- Will the payment change after a rate adjustment or escrow review?
- What closing costs and cash reserve are needed in addition to the down payment?
Use the calculator to test a few interest-rate scenarios and budget for the full monthly cost, not only principal and interest.
Related calculators
Sources and review notes
Examples were independently calculated using the assumptions shown. Regional limits were checked against the official sources below on 30 August 2026.
- Consumer Financial Protection Bureau: Mortgage payment calculation ↗
- Consumer Financial Protection Bureau: Principal, interest and total monthly payment ↗
This guide is educational information, not personal financial, investment, tax or legal advice.