How to Calculate Your Mortgage Payment: Fixed, Variable, and More

Calculations and Free Spreadsheets

House shaped calculator
••• David Malan / Getty Images

Understanding your mortgage helps you make better financial decisions. Instead of just taking hoping for the best, it pays to look at the numbers behind any loan— especially a significant loan like a home loan.

To calculate a mortgage, you’ll need a few details about the loan. Then, you can do it all by hand or use free online calculators and spreadsheets to crunch the numbers.

Most people only focus on the monthly payment, but there are other important details that you need to pay attention to.

This article shows you:

  • How to calculate the monthly payment for several different home loans.
  • How much you pay in interest monthly, and over the life of the loan.
  • How much you actually pay off—or how much of your house you’ll actually own at any given time.

The Inputs

Start the process by gathering information needed to calculate your payments and other aspects of the loan. You need the following details:

  • The loan amount or “principal." This is the home purchase price, minus any down payment, although other charges may be added to the loan.
  • The interest rate on the loan. This is not necessarily the APR, which also includes closing costs.
  • The number of years you have to repay, also known as the term
  • The type of loan: fixed-rate, interest-only, adjustable, etc.
  • The market value of the home
  • Your monthly income

Calculations for Different Loans

The calculation you use will depend on the type of loan you have.

Most home loans are fixed-rate loans. For example, standard 30-year or 15-year mortgages keep the same interest rate and monthly payment for the life of the loan.

For those loans, the formula is:

Loan Payment = Amount / Discount Factor
or
P = A / D

You’ll use the following values:

  • Number of Periodic Payments (n) = Payments per year times number of years
  • Periodic Interest Rate (i) = Annual rate divided by number of payments per
  • Discount Factor (D) = {[(1 + i) ^n] - 1} / [i(1 + i)^n]

Example: Assume you borrow $100,000 at 6 percent for 30 years, to be repaid monthly. What is the monthly payment (P)? The monthly payment is $599.55.

  • n = 360 (30 years times 12 monthly payments per year)
  • i = .005 (6 percent annually expressed as .06, divided by 12 monthly payments per year. For more details, see how to convert percentages to decimal format)
  • D = 166.7916 ({[(1+.005)^360] - 1} / [.005(1+.005)^360])
  • P = A / D = 100,000 / 166.7916 = 599.55

Check your math with the  spreadsheet.

How Much Interest Do You Pay?

Your mortgage payment is important, but you also need to know how much you lose to interest each month. A portion of each monthly payment goes toward your interest cost, and the remainder pays down your loan balance. Note that you might also have taxes and insurance included in your monthly payment, but those are separate from your loan calculations.

An amortization table can show you— month-by-month—exactly what happens with each payment. You can create amortization tables by hand, or use a free online to do the job for you.

Take a look at how much total interest you pay over the life of your loan. With that information, you can decide if you want to save money by:

  • Borrowing less (by choosing a less expensive home or making a larger down payment)
  • Paying extra each month
  • Finding a lower interest rate
  • Selecting a shorter-term loan (15 years instead of 30 years, for example)

Interest-Only Loan Payment Calculation Formula

Interest-only loans are much easier to calculate. For better or worse, you don’t actually pay down the loan with each required payment. However, you can typically pay extra each month if you want to reduce your debt.

Example: Assume you borrow $100,000 at 6 percent, using an interest-only loan with monthly payments. What is the payment (P)? The payment is $500.

Loan Payment = Amount x (Interest Rate / 12)
or
P = A x i

P = $100,000 x (.06 / 12)

P = $500

Check your math with the  on Google Sheets.

In the example above, the interest-only payment is $500, and it will remain the same until:

  1. You make additional payments, above and beyond the required minimum payment. Doing so will reduce your loan balance, but your required payment might not change right away.
  2. After a certain number of years, you’re required to start making amortizing payments to eliminate the debt.
  3. Your loan may require a balloon payment to pay off the loan entirely.

Adjustable-Rate Mortgage Payment Calculation

Adjustable-rate mortgages (ARMs) feature interest rates that can change, resulting in a new monthly payment. To calculate that payment:

  1. Determine how many months or payments are left.
  2. Create a new amortization schedule for the length of time remaining (see how to do that).
  3. Use the outstanding loan balance as the new loan amount.
  4. Enter the new (or future) interest rate.

Example: You have a hybrid-ARM loan balance of $100,000, and there are ten years left on the loan. Your interest rate is about to adjust to 5 percent. What will the monthly payment be? The payment will be $1,060.66.

Know How Much You Own (Equity)

It’s crucial to understand how much of your home you actually own. Of course, you own the home—but until it’s paid off, your lender has an interest or a lien on the property, so it’s not free-and-clear. The amount that’s yours, known as your home equity, is the home’s market value minus any outstanding loan balance.

You might want to calculate your equity for several reasons.

Your loan-to-value (LTV) ratio is critical because lenders look for a minimum ratio before approving loans. If you want to refinance or figure out how big your down payment needs to be on your next home, you need to know the LTV ratio.

Your net worth is based on how much of your home you actually own. Having a one million dollar home doesn’t do you much good if you owe $999,000 on the property.

You can borrow against your home using second mortgages and home equity lines of credit (HELOCs). Lenders often prefer an LTV below 80 percent to approve a loan, but some lenders go higher.

Can You Afford the Loan?

Lenders usually offer you the largest loan that they’ll approve you for using their standards for an acceptable debt-to-income ratio. However, you don’t need to take the full amount—and it’s often a good idea to borrow less than the maximum available.

Before you apply for loans or visit houses, look at your monthly budget and decide how much you’re comfortable spending on a mortgage payment. After you’ve made a decision, start talking to lenders and looking at debt-to-income ratios. If you do it the other way around, you might start shopping for more expensive homes (and you might even buy one—which affects your budget and leaves you vulnerable to surprises). It’s better to buy less and enjoy some wiggle room than to struggle to keep up with payments.

Learn more about how to borrow without going broke.