A mortgage payment has up to five parts: principal, interest, property tax, homeowners insurance and, sometimes, mortgage insurance and HOA dues. The first two come from one formula; the rest are added on.
Step 1: Find the loan amount
Subtract your down payment from the price. A $400,000 home with $80,000 down means borrowing $320,000.
Step 2: Convert the rate and term to months
Divide the annual rate by 12 and multiply the years by 12. A 6.5% rate over 30 years becomes a monthly rate of 0.005417 and 360 payments.
Step 3: Apply the payment formula
Payment = L × r ÷ (1 − (1 + r)−n). For our example, that works out to about $2,022.62 per month for principal and interest.
Step 4: Add taxes, insurance and other costs
Divide yearly property tax and insurance by twelve and add them, along with any PMI and HOA dues. With $4,400 in tax and $1,800 in insurance, the total comes to roughly $2,539.
Why early payments are mostly interest
Interest is charged on the remaining balance. At the start the balance is highest, so the interest share is highest too. In the first month of our example, about $1,733 of the $2,023 is interest. Over time the split reverses.
Skip the arithmetic with the mortgage calculator, and if you are weighing a lower rate on an existing loan, try the refinance calculator. To work out a price range first, read how much house can I afford.