How Is a Mortgage Monthly Payment Calculated? A Simple Guide

Your monthly mortgage payment depends on three numbers: how much you borrow, the interest rate and how many years you take to pay it back. Try your own numbers in our free mortgage calculator, or read on to see how it works.

The formula behind the payment

Most fixed-rate mortgages are paid back in equal monthly payments. Each payment covers that month's interest and a little of the loan itself. At the start most of the payment is interest; by the end most of it pays down the loan.

The monthly payment is:

payment = loan × r ÷ (1 − (1 + r)^−n)

where r is the yearly rate divided by 12 and n is the number of monthly payments (years × 12).

A worked example

A loan of 1,000,000 at 5% a year for 25 years (300 payments):

• Monthly payment: about 5,846
• Total paid over 25 years: about 1,753,770
• Of which interest: about 753,770

Take the same loan over 30 years and the monthly payment drops, but you pay more interest in total. Our calculator shows both, with a year-by-year table.

What the calculator doesn't include

• Several tracks. Many mortgages mix tracks: fixed, variable, prime or linked to the consumer price index. Each track has its own rate; work them out one at a time and add them up.
• Index-linked tracks change with inflation, so their payment isn't fixed.
• Insurance and fees charged by the bank.

How much can you borrow?

Banks look at your income as well as the property price. If you want to start from your monthly budget instead, use the affordability calculator.

For real estate offices

Agents get the same questions from buyers every week. Send them the mortgage calculator, and keep each buyer's details and next step on one leads board.