Your monthly mortgage payment is built from four parts: principal, interest, property taxes, and homeowners insurance. Lenders call this PITI. The principal and interest portion follows a specific formula, while taxes and insurance are estimated separately and often collected alongside your loan payment each month. Here’s how to calculate each piece.
The Principal and Interest Formula
The core of your mortgage payment is the principal and interest, often abbreviated P&I. For a fixed-rate mortgage, this amount stays the same every month for the life of the loan. The formula looks intimidating at first glance, but it only uses three inputs: your loan amount, your monthly interest rate, and the total number of payments.
The formula is:
M = P × [r(1 + r)^n] / [(1 + r)^n − 1]
Where M is your monthly payment, P is the loan amount (principal), r is your monthly interest rate, and n is the total number of monthly payments.
To get your monthly interest rate (r), divide the annual rate by 12. For a 6.25% annual rate, r = 0.0625 / 12 = 0.005208. To get the total number of payments (n), multiply the loan term in years by 12. A 30-year mortgage has 360 payments. A 15-year mortgage has 180.
A Worked Example
Say you’re buying a $400,000 home with a 20% down payment ($80,000), leaving you with a $320,000 loan. Your interest rate is 6.25% on a 30-year fixed mortgage.
First, convert the rate: 0.0625 / 12 = 0.005208. Your total payments: 30 × 12 = 360.
Now plug those numbers in:
- Calculate (1 + r)^n: (1.005208)^360 = 6.4637
- Multiply the numerator: 0.005208 × 6.4637 = 0.03366
- Subtract 1 from (1 + r)^n for the denominator: 6.4637 − 1 = 5.4637
- Divide: 0.03366 / 5.4637 = 0.006161
- Multiply by the loan amount: $320,000 × 0.006161 = $1,971.52
Your monthly principal and interest payment would be roughly $1,972. That’s just the P&I portion. Your total monthly payment will be higher once you add taxes, insurance, and potentially mortgage insurance.
Adding Property Taxes
Property taxes are assessed as a percentage of your home’s value, and the rate varies widely by location. The national median effective rate is about 0.89%, but your actual rate could be well below or well above that depending on where you live.
To estimate, multiply your home’s value by the local tax rate and divide by 12. On a $400,000 home at the national median rate: $400,000 × 0.0089 = $3,560 per year, or about $297 per month. Your lender will typically collect this amount as part of your monthly payment and hold it in an escrow account, then pay your tax bill on your behalf.
Adding Homeowners Insurance
Lenders require homeowners insurance on every mortgage. Annual premiums range from a few hundred dollars to several thousand, depending on the home’s size, location, age, and your coverage level. A common ballpark for a $400,000 home is $1,200 to $2,400 per year, which works out to $100 to $200 per month. Like property taxes, this is usually collected through escrow.
You can get quotes from insurance companies before you close on a home, so you don’t have to guess at this number when budgeting.
When Mortgage Insurance Applies
If your down payment is less than 20% on a conventional loan, your lender will require private mortgage insurance (PMI). This protects the lender if you default. PMI rates typically range from 0.3% to 1.5% of the original loan amount per year, depending on your credit score and the size of your down payment. On a $320,000 loan at 0.5%, that’s $1,600 per year, or about $133 per month added to your payment. PMI drops off once you reach 20% equity in the home.
FHA loans have their own version called a mortgage insurance premium (MIP). FHA borrowers pay an upfront premium of 1.75% of the loan amount at closing, plus an ongoing annual MIP that varies by loan amount, down payment, and loan term. FHA mortgage insurance generally stays on the loan for its entire life unless you put at least 10% down, in which case it drops off after 11 years.
Putting the Full Payment Together
Using the example above with a $320,000 loan at 6.25% on a 30-year term, a $400,000 home, and a 20% down payment (meaning no PMI), here’s what the total monthly payment might look like:
- Principal and interest: $1,972
- Property taxes: $297 (at 0.89%)
- Homeowners insurance: $150 (estimated)
- Total: approximately $2,419
If you were putting only 10% down on the same home, your loan amount would be $360,000, pushing P&I to about $2,218. You’d also add PMI, perhaps $150 per month, bringing the total closer to $2,815. The down payment size has a compounding effect: it changes both the loan amount and whether you owe mortgage insurance.
How Amortization Shifts Your Payment Over Time
Even though your P&I payment stays the same each month on a fixed-rate mortgage, the split between principal and interest changes dramatically. Early in the loan, most of your payment goes toward interest because the outstanding balance is so large. Over time, as you pay down the balance, the interest portion shrinks and more of each payment chips away at the principal.
In the example above, your first month’s interest would be $320,000 × 0.0625 / 12 = $1,667. That means only about $305 of your $1,972 payment reduces your loan balance. By month 300 (25 years in), the remaining balance is much smaller, so nearly the entire payment goes toward principal. This is why making extra payments early in a mortgage has an outsized effect on total interest paid.
15-Year vs. 30-Year Loans
Running the same formula with a 15-year term changes the math significantly. Using the same $320,000 loan at 6.25%, the monthly P&I jumps to about $2,742, roughly $770 more per month. But the total interest paid over the life of the loan drops from around $390,000 on a 30-year to about $174,000 on a 15-year. You pay a higher monthly amount but save more than $216,000 in interest. Fifteen-year loans also typically come with slightly lower interest rates, which widens the savings further.
Using the Formula Without a Calculator
If you’d rather skip the exponents, most mortgage lenders and financial websites offer free calculators where you enter the home price, down payment, interest rate, and loan term to get an instant result. These tools are useful for comparing scenarios quickly, like seeing how an extra $10,000 in down payment changes your monthly cost, or what happens if rates move by half a percentage point.
For a quick mental estimate without any tools, a rough rule of thumb: at a 6% to 7% interest rate on a 30-year loan, every $100,000 borrowed costs roughly $600 to $665 per month in P&I. So a $300,000 loan at around 6.25% would run close to $1,850 in P&I. It’s not exact, but it gets you in the ballpark when you’re browsing listings or setting a budget.