Sarah, a 32-year-old nurse from Sydney’s inner west, found a $450,000 unit she loved. She stared at the listing for ten minutes, then asked the question every buyer asks: “But what will I actually pay each month?”
If you want to know how to calculate your monthly mortgage payment, you don’t need a finance degree or a spreadsheet wizard. You need one formula, four numbers and about five minutes. Let’s walk through Sarah’s real example together.
The Mortgage Payment Formula
Here is the standard formula banks use to work out your monthly mortgage repayment:
M = P × [ r(1 + r)^n ] ÷ [ (1 + r)^n − 1 ]
- M = your monthly repayment
- P = the loan amount (what you borrow)
- r = monthly interest rate (annual rate ÷ 12)
- n = number of monthly payments (years × 12)
It looks scary, but it’s just multiplication. Here it is in action.
Step-by-Step: Sarah’s Mortgage Calculation
Step 1: Work out the loan amount
Sarah saved a 20% deposit, which is $90,000. That leaves her with a loan of $360,000 ($450,000 minus $90,000).
Tip: In Australia, a deposit under 20% usually means paying Lenders Mortgage Insurance (LMI), an extra cost that many first-home buyers forget.
Step 2: Convert the interest rate to a monthly rate
For this example, we’ll use a 6.00% annual interest rate. This is a sample rate, so check current offers from your lender. Divide by 12:
6.00% ÷ 12 = 0.5%, or r = 0.005
Step 3: Count the number of payments
Sarah chose a 30-year loan. That’s 30 × 12 = 360 payments.
Step 4: Plug the numbers into the formula
- (1.005)^360 ≈ 6.0226
- Top part: 0.005 × 6.0226 = 0.030113
- Bottom part: 6.0226 − 1 = 5.0226
- M = $360,000 × (0.030113 ÷ 5.0226)
Sarah’s monthly mortgage payment = about $2,158
What does that really cost?
- Total repaid over 30 years: about $777,000
- Total interest paid: about $417,000
- In month one, $1,800 goes to interest and only $358 reduces her loan
That last number surprised Sarah. Early in a loan, most of your repayment feeds the bank’s interest. This is exactly what an amortization schedule shows.
What Changes Your Monthly Repayment?
Interest rate. On the same $360,000 loan, a rate of 5.5% gives a payment of about $2,044. At 6.5% it jumps to about $2,275. One percentage point adds roughly $231 a month.
Loan term. A 25-year loan means higher monthly payments but far less interest overall. A 30-year loan feels easier each month but costs more in the long run.
Costs outside the repayment. Your mortgage payment is not your full housing cost. Budget for stamp duty (it varies by state), council rates, strata fees, home insurance and maintenance.
How Sarah Cut Almost 6 Years Off Her Loan
After running her numbers, Sarah decided to pay an extra $200 a month into her loan. Her repayment becomes $2,358, and her 30-year loan shrinks to roughly 24 years. She saves about $95,000 in interest.
She also opened an offset account, so her savings reduce the interest charged without being locked away. Small habits like these add up quickly. Figures are rounded and assume the rate stays the same.
Skip the Maths: Use a Mortgage Calculator
The manual method is great for understanding where your money goes. For quick what-if scenarios, such as a different deposit, rate or term, use our [INTERNAL LINK: /mortgage-calculator “free mortgage calculator”]. Change one number and see the result instantly.
FAQ: Monthly Mortgage Payments
How do I calculate my monthly mortgage payment manually?
Use the formula M = P × [r(1 + r)^n] ÷ [(1 + r)^n − 1]. Enter your loan amount, monthly interest rate and total number of monthly payments.
How much is the monthly payment on a $450,000 home?
With a 20% deposit ($360,000 loan), a 6% rate and a 30-year term, the repayment is about $2,158 a month. It changes with your deposit, rate and term.
Does my repayment include stamp duty and rates?
No. Stamp duty is a one-off cost paid at purchase, and council rates, insurance and strata fees are separate ongoing costs.
Final Thoughts
Sarah bought her unit knowing exactly what she’d pay, with no surprises and no sleepless nights. Knowing how to calculate your monthly mortgage payment puts you in the same position, whether you’re buying in Sydney, Melbourne or anywhere else.
Grab your own numbers, run the formula and see what your first home could look like. Then talk to a licensed mortgage broker to confirm what you can borrow.
This article is general information only, not financial advice. The 6% rate is an example, so check current rates before making decisions.