How to Calculate a Mortgage Payment: Formula, PITI, PMI & Extra Payments

Before you make an offer on a home, you need to know one number above all: the monthly payment. This guide explains how to calculate a mortgage payment with the standard mortgage payment formula, walks through a full example, shows what is included in a typical US payment (PITI), how PMI works, how extra payments shorten your loan, and how much house you can afford – with a UK example too.

The Mortgage Payment Formula

For a standard fixed-rate repayment mortgage, the monthly principal and interest payment is:

M = P × r × (1 + r)ⁿ ÷ [(1 + r)ⁿ − 1]

• M = monthly payment (principal and interest)
• P = loan amount (home price minus down payment)
• r = monthly interest rate = annual rate ÷ 12 ÷ 100
• n = number of monthly payments = years × 12

This is the same amortization formula used for car loans and Indian home loan EMIs.

Worked Example: $320,000 Mortgage at 6.5% for 30 Years

You buy a $400,000 home with a 20% down payment ($80,000), so the loan is $320,000. The rate is 6.5% for 30 years.

1. r = 6.5 ÷ 12 ÷ 100 = 0.0054167
2. n = 30 × 12 = 360
3. (1 + r)³⁶⁰ ≈ 6.992
4. M = 320,000 × 0.0054167 × 6.992 ÷ (6.992 − 1) ≈ $2,022.62

Over 30 years you pay about $728,142 in total, of which $408,142 is interest – more than the amount you borrowed.

What Is Included in a Mortgage Payment (PITI)

In the United States, the monthly payment your lender collects is often PITI:

• Principal – repays the loan balance.
• Interest – the lender's charge.
• Taxes – property tax, often around 1% of the home's value a year, collected monthly into an escrow account.
• Insurance – homeowners insurance, also usually paid through escrow.

For the example above, adding property tax of 1.1% a year ($367 a month) and insurance of $1,800 a year ($150 a month) brings the total monthly payment to about $2,539. Condo and community owners may also pay HOA fees.

PMI: Private Mortgage Insurance

If your down payment on a conventional loan is less than 20%, lenders usually require PMI, typically 0.3%–1.5% of the loan a year depending on your credit score and down payment. With 10% down on the same $400,000 home, the loan is $360,000; at 0.5% a year, PMI adds about $150 a month. Under US law, PMI must end automatically when your balance is scheduled to reach 78% of the home's original value, and you can ask for it to be removed at 80%.

How Amortization Works

Your principal and interest payment stays the same, but its split changes every month. Interest is charged on the remaining balance, so early payments are mostly interest. In the first month of our example, interest is $320,000 × 0.0054167 = $1,733.33, so only $289.28 of the $2,022.62 payment reduces the loan. By the final years, almost the entire payment goes to principal. A mortgage amortization schedule shows this month by month – our calculator lets you download it as a CSV file.

15-Year vs 30-Year Mortgage

A 15-year mortgage costs about $635 more a month but saves roughly $250,000 in interest. A 30-year loan gives lower payments and more flexibility, and you can still pay it off early.

How Extra Payments Save Money

Every extra dollar you pay goes straight to principal. On the $320,000 loan at 6.5% for 30 years, paying just $200 extra a month saves about $105,000 in interest and pays the loan off about 6½ years early. One extra payment a year, or rounding your payment up, has a similar effect. Check that your loan has no prepayment penalty – most modern US mortgages do not.

How Much House Can I Afford?

A common guideline is the 28/36 rule: housing costs (PITI) should be no more than 28% of your gross monthly income, and all debt payments no more than 36%. With a total payment of $2,700 a month, you would want a gross income of about $9,650 a month, or roughly $116,000 a year. Lenders also consider your credit score, savings, job history and down payment.

Mortgage Payments in the UK

UK mortgages use the same repayment formula but are usually taken over 25–35 years with a fixed rate for 2 or 5 years that then moves to the lender's variable rate. Council tax and buildings insurance are paid separately, not through the lender. For example, a £200,000 repayment mortgage at 4.5% over 25 years costs about £1,111.66 a month. Most UK fixed-rate deals let you overpay up to 10% of the balance each year without an early repayment charge.

Home Loans in India

In India the same calculation is called the home loan EMI. Property tax and insurance are paid separately, and most loans are floating-rate and linked to the repo rate. Read our guide on how to calculate home loan EMI or use the EMI calculator.

Ways to Lower Your Mortgage Payment

1. Improve your credit score before applying to qualify for a lower rate.
2. Put down 20% or more to avoid PMI.
3. Compare at least three lenders and look at the APR, which includes fees.
4. Consider buying points if you will keep the loan long enough to break even.
5. Appeal your property tax assessment if it seems too high, and shop around for insurance.
6. Refinance when rates fall meaningfully below your current rate, after allowing for closing costs.

Fixed vs Adjustable-Rate Mortgages

A fixed-rate mortgage keeps the same interest rate – and the same principal and interest payment – for the whole term in the US, or for the fixed period in the UK. An adjustable-rate mortgage (ARM), such as a 5/1 or 7/1 ARM, has a fixed rate for the first few years and then adjusts periodically based on a market index, within caps. ARMs often start with a lower rate, but your payment can rise later. To estimate an ARM, calculate the fixed period at the starting rate, then recalculate the remaining balance at a higher rate to see a "worst reasonable case".

Closing Costs and the Cash You Need

Besides the down payment, US buyers typically pay closing costs of about 2%–5% of the loan amount – lender fees, appraisal, title insurance, taxes and prepaid items such as insurance and escrow deposits. On a $320,000 loan that could be $6,400–$16,000. In the UK, buyers pay stamp duty (depending on price and buyer status), legal fees and survey costs. Build these into your savings plan so the down payment is not the only cash you need.

When Does Refinancing Make Sense?

Refinancing replaces your mortgage with a new one, usually to get a lower rate or shorter term. A simple test is the break-even point: divide the total refinancing costs by the monthly saving. If refinancing costs $6,000 and saves $250 a month, you break even after 24 months – worthwhile if you plan to stay in the home longer than that.

Frequently Asked Questions

Disclaimer: Examples assume fixed-rate repayment mortgages and illustrative interest rates. Your lender's Loan Estimate or mortgage offer gives the exact figures. This article is general information, not financial advice.