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How To Calculate Your Mortgage Payments In 7 Steps

Written by Than Merrill

Mortgage payments come in a monthly lump sum the borrower pays each month. However, it’s critical to note that there is more in that payment than the initial home loan. Many mortgages include property taxes, homeowner’s insurance, and private mortgage insurance.

It might seem scary to calculate your mortgage payments, but there is a way to find an estimate with a simple formula. There are many mortgage payment calculator options. Read on to learn more about how you can estimate your mortgage payments in a few steps.

Typical Costs In A Mortgage Payment

There are several costs associated with a mortgage payment. Most of the money is the principal interest, but there are other considerations.

Here are the most common costs:

  • Principal: The initial amount borrowed from the lender.

  • Interest: Additional charges from the lender for borrowing the money.

  • Homeowners insurance: Any insurance policy to cover potential damage, such as floods or theft. You pay a twelfth of the premium each month.

  • Property tax: A tax that local authorities determine for your home.

  • Mortgage insurance: An extra insurance premium, often required if your down payment is under 20% of the price.

The monthly lump sum covers your principal and interest, but it likely contains these items as well.

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mortgage payment formula

Mortgage Payment Formula

It’s possible to calculate your mortgage payment with a simple formula. You can write it out or take advantage of a mortgage payment calculator.

M = P [ i(1 + i)^n ] / [ (1 + i)^n – 1]

M is the total monthly payment. P is the principal loan amount. R is the monthly interest rate, which you should divide by twelve to get an accurate answer. N is the number of necessary payments over the lifetime of the loan.

How To Calculate Your Mortgage Payment

There are many ways to calculate your mortgage payment every month. It’s possible to use an online mortgage payment calculator. If you want to do it yourself, there are some steps you should follow.

These include:

  1. Find Your Mortgage Principal

  2. Calculate The Monthly Interest Rate

  3. Determine The Number Of Payments

  4. Find Out If You Need Private Mortgage Insurance (PMI)

  5. Calculate Property Taxes

  6. Take Homeowners Insurance Into Consideration

  7. Calculate Your Monthly Payment

Following these steps to the letter will give you an accurate and useful number.

Let’s talk more about how you calculate your mortgage payment every month. There are many things to consider before borrowing money.

1. Find Your Mortgage Principal

First, you need to find your mortgage principal. This is the initial amount of the loan. If you borrow $50,000, the mortgage principal is $50,000.

There are two types of mortgages you can pay with your principal investment. A fixed-rate mortgage allows you to pay the same thing every month, and there is consistency in your payments.

There are other types of payments that allow variation in monthly payments. However, a fixed mortgage tends to be the easiest.

2. Calculate The Monthly Interest Rate

Next, it’s time to calculate the monthly interest rate. This item is the fee the lender charges you for borrowing the money. Those with a better history of payments may get a lower interest rate than someone who looks less reliable. You want a good credit score, a low debt-to-income ratio, and a high down payment before you borrow.

The individual or entity that lends you the money should provide their annual interest rate for a mortgage. Take that interest rate and divide it by twelve to find the monthly rate.

For instance, a company might offer an interest of 10%. That would be .1/12, which equals .008. That’s what you can expect to pay in interest a month.

3. Determine The Number Of Payments

Now that you have the principal and the monthly interest rate, it’s time to determine the number of payments you need to make. Some people can pay in fifteen years, while others take thirty to own their home.

You can determine the number of payments by taking twelve months and multiplying them by the years you plan to pay. For example, a fifteen-year loan would require 180 payments, and a thirty-year loan would need 360 payments. That’s a long time to pay for a home.

If you have a different loan, you can use an online calculator to determine your number of payments. It’s critical to know this number to prepare yourself for the future.

4. Find Out If You Need Private Mortgage Insurance (PMI)

Next, you need to find out if you need private mortgage insurance. It’s ideal if you don’t – PMI is another payment addition added to the lump sum each month.

You can avoid private mortgage insurance if you pay at least 20% or more for your down payment. Aim as high as possible to get rid of payments and prevent higher monthly investments for your mortgage.

If you don’t make a down payment of at least 20%, your lender will add the insurance to your monthly payments. It’s often 0.2% – 2% of the principal.

Sometimes, the PMI goes away once you have paid off 20% of the house. Still, it’s best to avoid it if you can for your pockets.

5. Calculate Property Taxes

Property taxes are the next step. The lender collects these, and they will put them in an account for you, essentially an escrow account. The lender will pay this money to the government at the end of the year, so you don’t have to worry about it.

Taxes vary based on many items. Your location plays a large part in what you pay, and the home’s value is another contributor. It’s possible that you may get a refund or need to pay more at the end of the year, as with all taxes.

If you are curious about your property taxes, you can check on your local government site. They will have all the information you need about taxes.

6. Take Homeowners Insurance Into Consideration

Even if you think you can avoid it, homeowner’s insurance should be taken into consideration. Most people have to pay for this item, and the lender will automatically add the cost to the payment you make each month.

There are many different types of insurance in the world. For homeowners, there are eight options to choose from for your place. It’s critical to consult a professional to determine which will help you the most in case of a disaster.

Varying price points depend on the type of insurance you get, and a high deductible means you owe a lower monthly premium than other choices.

7. Calculate Your Monthly Payment

It’s finally time to calculate your mortgage payment. You can use an online mortgage calculator with extra payments, a traditional mortgage payment calculator, or the formula listed above if you want to calculate the number by hand.

Calculate the payment a few times to ensure you did it correctly. The closer you can get, the better your financial future.

Once you have your monthly payment, you can determine if the mortgage is affordable. It’s helpful to calculate this estimate ahead of time to steer clear of sticky situations.

How To Lower Monthly Mortgage Payments

Maybe you have your dream home but can’t afford the mortgage payments. There are a few ways to lower the monthly payments for your mortgage.

Here are some of the best ways to lower your monthly payments:

  • Pick a cheaper home: A less expensive house means lower payments. You might be able to find your dream home in a different location or in a different style.

  • Invest in a better down payment: The higher the down payment, the lower the monthly cost. Aim for at least 20% to ensure you get better rates for the other mortgage fees.

  • Look for a lower interest rate: Interest builds over time, so the lower the rate, the better. However, some need you to pay upfront.

  • Look out for PMI: Pay at least 20% on your down payment to steer clear of PMI. The more you pay, the safer you can be on that front.

  • Pick a longer loan: The longer the loan, the lower each monthly payment. It might mean paying more in the long run.

These can all help lower the monthly payment and make your mortgage more afordable.

If you can’t afford the loan, it doesn’t make sense to buy out of your price range. You may lose your home.


When you borrow money for a home, you have to pay it back. Most borrowers pay for their loans through monthly lump sums, which include items like principal, interest, homeowner’s insurance, mortgage insurance, and property taxes. There are many items pulled together into one payment.

The more prepared you are for your loan payments, the better off you will be. Learning how to calculate your mortgage payment can help you prepare for the future as you dive into home ownership, whether for the first time or the fifth time. If you want a nice home, a mortgage and monthly payments may be in your future.

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