The mortgage payment formula
A fixed-rate mortgage is an amortizing loan: you make the same payment every month, sized so the balance reaches zero exactly at the end of the term. The principal-and-interest payment is found with the standard amortization formula:
Where M is the monthly payment, P is the loan amount (home price minus down payment), i is the monthly interest rate (annual rate ÷ 12), and n is the number of monthly payments (years × 12). This figure covers principal and interest only — property tax, homeowners insurance and any PMI or HOA dues are extra.
Worked example
A $350,000 home with $70,000 down (a $280,000 loan) at 6.5% over 30 years:
How amortization works
Although the payment is constant, its makeup shifts. In the first month interest is charged on the whole balance, so most of the payment is interest. As the balance falls the interest portion shrinks and more goes to principal. That is why making extra payments early in a 30-year mortgage saves so much interest.