How Mortgage Payments Work
A mortgage payment consists of two main components: principal and interest. The principal is the amount you borrowed, while interest is the cost of borrowing that money. Over time, as you make payments, more of each payment goes toward the principal and less toward interest.
The Mortgage Formula
M = P × [r(1+r)^n] / [(1+r)^n - 1]
Where M is the monthly payment, P is the principal (loan amount), r is the monthly interest rate (annual rate ÷ 12), and n is the total number of payments (years × 12).
Mortgage FAQs
Can I make extra payments to pay off my mortgage faster?
Yes! Making extra payments toward your principal can significantly reduce the total interest you pay and shorten your loan term. Even small additional payments can save thousands in interest over the life of the loan.
How does the interest rate affect my payment?
The interest rate has a major impact on your monthly payment. A higher rate means higher payments and more total interest paid over the life of the loan. Even a 0.5% difference can add up to tens of thousands of dollars over 30 years.
Should I choose a 15-year or 30-year mortgage?
A 15-year mortgage has higher monthly payments but saves significantly on interest and builds equity faster. A 30-year mortgage offers lower monthly payments, providing more flexibility but costing more in total interest. Choose based on your financial situation and goals.
Financial Disclaimer
This calculator is for educational purposes only. Actual mortgage rates and terms may vary. Always consult with a licensed mortgage professional for personalized advice and current rates.