How to Calculate Your Monthly Mortgage Payment Step by Step
Learn how to calculate monthly mortgage payment using the amortization formula, with a real $400k example showing full PITI cost breakdown.
Why You Need to Know Your True Monthly Mortgage Payment
Learning how to calculate monthly mortgage payment is one of the most important steps before buying a home. Your lender will give you a number, but that number rarely reflects what you'll actually pay each month. Taxes, insurance, and PMI can add hundreds of dollars on top of principal and interest — and many buyers are caught off guard at closing.
This guide walks you through the exact calculation, step by step, using a real $400,000 home as a running example.
Step 1: Gather Your Loan Details
Before you run any numbers, collect four inputs:
- Home price — the purchase price agreed with the seller
- Down payment — the amount you're paying upfront (expressed as dollars or a percentage)
- Interest rate — your annual percentage rate (APR) from the lender
- Loan term — typically 15 or 30 years
Example values we'll use throughout this article:
| Input | Value |
|---|---|
| Home price | $400,000 |
| Down payment | 10% ($40,000) |
| Loan amount | $360,000 |
| Annual interest rate | 6.75% APR |
| Loan term | 30 years (360 months) |
If you haven't compared lenders yet, even a 0.25% difference in rate can save or cost you tens of thousands over the life of the loan.
Step 2: Calculate the Loan Principal
Subtract your down payment from the purchase price:
Loan Principal = Home Price − Down Payment
$400,000 − $40,000 = $360,000
This is the amount you're actually borrowing — the "P" in the formula you'll use next.
Step 3: Convert Your Annual Rate to a Monthly Rate
Mortgage payments are made monthly, so you need a monthly interest rate. Divide the annual rate by 12:
Monthly Rate (r) = Annual APR ÷ 12
6.75% ÷ 12 = 0.5625% per month, or 0.005625 as a decimal
Step 4: Apply the Amortization Formula
The standard mortgage payment formula is:
M = P × [r(1+r)^n] ÷ [(1+r)^n − 1]
Where:
- M = monthly payment (principal + interest)
- P = loan principal ($360,000)
- r = monthly interest rate (0.005625)
- n = total number of payments (30 × 12 = 360)
Plugging in the numbers:
- (1 + 0.005625)^360 = 7.6878
- Numerator: 0.005625 × 7.6878 = 0.04325
- Denominator: 7.6878 − 1 = 6.6878
- M = $360,000 × (0.04325 ÷ 6.6878) = $360,000 × 0.006468 = $2,328/month
This $2,328 covers only principal and interest. Your actual bill is higher.
Rather than doing this arithmetic by hand, use the CalcKit Mortgage Calculator to get an instant, accurate result for any scenario.
Step 5: Add Property Taxes, Insurance, and PMI
Lenders and housing experts refer to the full monthly cost as PITI — Principal, Interest, Taxes, and Insurance. Here's how each piece breaks down for our $400,000 example:
| Component | Calculation | Monthly Cost |
|---|---|---|
| Principal + Interest | Formula above | $2,328 |
| Property tax | 1.25% of $400k ÷ 12 | ~$417 |
| Homeowner's insurance | Estimated annual premium ÷ 12 | ~$100 |
| PMI (10% down) | ~0.5% of loan ÷ 12 | ~$150 |
| Total PITI | ~$2,995/month |
Why PMI? Private mortgage insurance is required when your down payment is less than 20% of the home's value. It protects the lender — not you — and can be canceled once you reach 20% equity.
How Down Payment Size Changes Your Monthly Payment
One of the most powerful decisions you can make is increasing your down payment. Here's the full picture for a $400,000 home at 6.75% APR on a 30-year term:
| Down Payment | Loan Amount | Monthly P+I | PMI | Estimated PITI |
|---|---|---|---|---|
| 5% ($20,000) | $380,000 | $2,465 | ~$190 | ~$3,172+ |
| 10% ($40,000) | $360,000 | $2,328 | ~$150 | ~$2,995+ |
| 20% ($80,000) | $320,000 | $2,076 | $0 | ~$2,593+ |
Moving from 5% to 20% down cuts your monthly payment by roughly $580 and eliminates PMI entirely.
Putting It All Together
Here's a quick recap of the five steps to calculate your monthly mortgage payment:
- Gather inputs — home price, down payment, rate, term
- Calculate principal — home price minus down payment
- Convert rate — divide annual APR by 12
- Apply the formula — M = P[r(1+r)^n]/[(1+r)^n−1]
- Add PITI components — taxes, insurance, and PMI for the real number
For our $400,000 example at 6.75% with 10% down, the true monthly cost is approximately $2,995/month — about $667 more than the principal-and-interest figure alone.
Use the CalcKit Mortgage Calculator to model your own scenario in seconds. You can also explore the Loan Calculator to compare mortgage options against other financing, or the Savings Calculator to figure out how long it will take to save your down payment.