How to Calculate Your Mortgage Payment

When lenders talk about your "mortgage payment," they usually mean your total monthly housing cost, often abbreviated as PITI:

• P — Principal: The portion that reduces your loan balance
• I — Interest: The cost of borrowing the money
• T — Property Taxes: Collected monthly by your lender and paid to your county
• I — Homeowner's Insurance: Required by lenders to protect the property

Many borrowers are also required to pay PMI (Private Mortgage Insurance) if their down payment is less than 20% of the home's purchase price. This adds $50–$200/month on a typical loan and disappears once you reach 20% equity.

The monthly principal and interest (P&I) payment on a fixed-rate mortgage is calculated using this formula:

M = P × [r(1+r)^n] / [(1+r)^n − 1]

Where:

• M = Monthly payment
• P = Principal loan amount
• r = Monthly interest rate (annual rate ÷ 12)
• n = Total number of payments (years × 12)

Example: $350,000 loan at 7% for 30 years.

• r = 7% ÷ 12 = 0.5833% per month (0.005833)
• n = 30 × 12 = 360 payments
• M ≈ $2,329/month

Over 30 years, you would pay $838,520 total — $350,000 in principal and $488,520 in interest.

The term length of your mortgage dramatically affects both your monthly payment and your total interest paid.

Example: $350,000 loan at 6.75% (typical spread)

• 30-year mortgage: ~$2,270/month — Total interest: ~$467,000
• 15-year mortgage: ~$3,100/month — Total interest: ~$208,000

The 15-year option saves roughly $259,000 in interest but costs $830 more per month. A common rule of thumb: choose a 30-year mortgage but make extra principal payments when you can.

Property Taxes: The national average is about 1.1% of home value per year, but it varies dramatically:

• Low-tax states: Hawaii (0.27%), Alabama (0.37%), Louisiana (0.51%)
• High-tax states: New Jersey (2.23%), Illinois (2.07%), Connecticut (1.97%)

On a $400,000 home, property taxes could range from $1,080/year (Hawaii) to $8,920/year (New Jersey) — a difference of $659/month in your PITI.

Homeowner's Insurance: Typically $1,200–$2,400/year nationally, or $100–$200/month.

PMI: If your down payment is under 20%, expect to add 0.5%–1.5% of the loan amount annually. On a $300,000 loan, that's $125–$375/month until you reach 20% equity.

Lenders use two ratios to determine how much they will lend you:

Front-End Ratio: Your total monthly housing cost (PITI) should not exceed 28% of your gross monthly income.

Back-End Ratio: Your total monthly debt payments (housing + car + student loans + credit cards) should not exceed 43% of your gross monthly income.

Example: $80,000/year gross income = $6,667/month

• Max housing payment (28%): $1,867/month
• Max total debt (43%): $2,867/month

Use our mortgage calculator to model specific scenarios, or try our mortgage affordability calculator for a personalized estimate.