How to Calculate Mortgage Payments
Published January 10, 2026 · 9 min read
Your monthly mortgage payment is more than just principal and interest. Taxes, homeowners insurance, mortgage insurance (PMI), and HOA dues can all impact affordability. This guide walks through the exact formula lenders use, explains how escrow works, and shows real examples so you can plan with confidence.
The Mortgage Payment Formula (Principal & Interest)
Lenders use the standard amortization formula for fixed-rate mortgages:
P = (r × L) / (1 - (1 + r)-n)
P = monthly principal and interest payment · L = loan amount · r = monthly interest rate (annual rate ÷ 12) · n = total number of payments (months)
This gives you the P&I portion. To reach a full payment (PITI), add estimated property taxes, homeowners insurance, and PMI if required.
Key Inputs You Need
- Home price and down payment: Determine the loan amount (price minus down payment).
- Interest rate: Annual percentage rate. Divide by 12 for the monthly rate.
- Loan term: Total years (commonly 30, 20, 15, or 10). Multiply by 12 for months.
- Property taxes: Annual amount from your tax bill or an estimate (often 0.8%-1.5% of home value per year in the US).
- Homeowners insurance: Annual premium; divide by 12 to get monthly.
- PMI: Required when down payment < 20% on conventional loans. Typically 0.3%-1.5% of loan per year, billed monthly until you reach 20% equity.
- HOA dues: Monthly or quarterly, if applicable.
Step-by-Step: Calculate a Mortgage Payment
1) Compute principal and interest (P&I)
- Convert the annual rate to monthly: rate ÷ 12.
- Convert the term to months: years × 12.
- Plug loan amount, monthly rate, and months into the formula.
2) Add property taxes and insurance
Divide annual taxes and homeowners insurance by 12 to get monthly escrow estimates.
3) Add PMI if down payment is under 20%
Multiply loan amount by the annual PMI rate, then divide by 12. Plan to remove PMI after reaching 20% equity.
4) Include HOA dues (if any)
Add monthly HOA fees to reach the full PITI + HOA payment.
Mortgage Payment Examples
Example 1: $400,000 home, 20% down (no PMI)
Scenario:
Home price: $400,000; Down payment: 20% ($80,000)
Loan amount: $320,000; Rate: 6.25%; Term: 30 years
Taxes: $4,800/yr; Insurance: $1,500/yr
Step 1: Monthly rate & term
r = 0.0625 ÷ 12 = 0.0052083
n = 30 × 12 = 360
Step 2: P&I
P = (0.0052083 × 320,000) / (1 - (1 + 0.0052083)^-360) ≈ $1,969
Step 3: Escrows
Taxes: $4,800 ÷ 12 = $400
Insurance: $1,500 ÷ 12 = $125
Estimated payment (PITI): $1,969 + $400 + $125 = $2,494
Example 2: $500,000 home, 10% down (PMI required)
Scenario:
Home price: $500,000; Down payment: 10% ($50,000)
Loan amount: $450,000; Rate: 6.5%; Term: 30 years
Taxes: $6,000/yr; Insurance: $1,800/yr; PMI rate: 0.8%/yr
Step 1: Monthly rate & term
r = 0.065 ÷ 12 = 0.0054167
n = 360
Step 2: P&I
P ≈ (0.0054167 × 450,000) / (1 - (1 + 0.0054167)^-360) ≈ $2,848
Step 3: Escrows and PMI
Taxes: $6,000 ÷ 12 = $500
Insurance: $1,800 ÷ 12 = $150
PMI: (0.008 × 450,000) ÷ 12 ≈ $300
Estimated payment (PITI + PMI): $2,848 + $500 + $150 + $300 = $3,798
PMI can usually be removed at 20% equity (or 22% automatically with on-time payments). Refinancing can also remove PMI if home value rises.
Example 3: 15-year vs 30-year comparison
Scenario:
Loan amount: $300,000
30-year rate: 6.25%; 15-year rate: 5.4%
Monthly payments (P&I)
30-year: P ≈ $1,848
15-year: P ≈ $2,438
Total interest paid
30-year: ≈ $364,000
15-year: ≈ $139,000
Shorter terms mean higher monthly payments but dramatically less total interest. Evaluate cash flow vs. long-term savings.
How PMI Works (and Ends)
- When it applies: Conventional loans with <20% down payment.
- Cost: Typically 0.3%-1.5% of loan per year, billed monthly.
- Removal: Request removal at 80% loan-to-value (LTV); automatic at 78%-80% depending on servicer rules and payment history.
- FHA loans: MIP applies and may require refinance to remove depending on term/down payment.
- USDA/VA: Guarantee or funding fees instead of PMI; baked into upfront or monthly costs.
Taxes, Insurance, and Escrow
Most lenders collect property taxes and homeowners insurance in an escrow account. You pay 1/12 of the annual amount monthly, and the servicer pays bills when due. If taxes rise, your escrow can adjust annually.
Ask your lender for the latest escrow projections and cushion rules. Compare offers with and without escrow if allowed in your state.
Interest Rate, Points, and APR
- Rate: The note rate used in the payment formula.
- Points: Upfront cost to buy a lower rate (1 point = 1% of loan amount). Break-even depends on how long you keep the loan.
- APR: Reflects rate plus certain fees; helpful for comparing offers but not used in the payment formula.
Common Mortgage Calculation Mistakes
- Forgetting to add taxes and insurance, leading to underestimating total payment.
- Using annual interest rate directly in the formula instead of the monthly rate.
- Ignoring PMI when down payment is under 20%.
- Overlooking HOA dues or flood insurance in coastal/river zones.
- Comparing offers by payment only instead of APR and total cost.
- Assuming PMI lasts for the life of the loan; plan for removal at 20% equity.
Frequently Asked Questions
How do I include PMI in my payment?
Multiply your loan amount by the annual PMI rate, then divide by 12. Add that to your P&I, taxes, and insurance. PMI usually drops off once you reach 20% equity.
Is it better to buy points or increase my down payment?
Points lower your rate; higher down payment lowers PMI and loan amount. Calculate both scenarios based on how long you expect to keep the loan. Points make more sense if you will stay long enough to pass the break-even point.
Should I choose a 15-year or 30-year mortgage?
A 15-year loan offers lower total interest but higher monthly payments. Choose 30-year for flexibility and extra cash flow; you can still pay extra principal when affordable.
Can I remove PMI early?
Yes. You can request PMI removal at 80% LTV based on your payments or a new appraisal if your home value has increased. Servicers often remove automatically around 78%-80% with on-time payments.
What is PITI?
PITI stands for Principal, Interest, Taxes, and Insurance. Add HOA or PMI if applicable for a complete monthly housing cost.
How accurate are online mortgage calculators?
They are accurate for principal and interest. Total payment accuracy depends on good inputs for taxes, insurance, PMI, and HOA dues. Always compare against a lender Loan Estimate.
How do adjustable-rate mortgages (ARMs) change the payment?
ARMs use the same formula but the rate can reset after the fixed period. Model worst-case caps and indexes to understand potential increases.
What fees are not in the monthly payment?
Closing costs (origination, title, appraisal), maintenance, utilities, and repairs are outside the monthly payment. Budget a reserve for these expenses.