How Mortgage Payments Are Calculated
A fixed-rate mortgage is repaid through equal monthly payments that cover both principal and interest. The standard amortizing-loan formula M = P[r(1+r)^n] / [(1+r)^n − 1] computes the constant payment that fully repays the loan by the end of the term. Here P is the loan amount, r is the monthly interest rate (the annual rate divided by 12), and n is the total number of monthly payments (the term in years multiplied by 12).
Early in the loan, a large share of each payment goes toward interest and only a small amount reduces the principal. As the balance shrinks, the interest portion falls and more of each payment applies to principal — a process called amortization. Over a 30-year loan the total interest can rival or exceed the original loan amount, which is why the term length has such a large effect on the total cost.
Reading the Result
The calculator reports the monthly payment, the total interest paid over the full term, and the total amount paid (principal plus interest). In the default example, a $300,000 loan at 5% over 30 years produces a monthly payment of about $1,610 and roughly $279,767 in total interest. Shortening the term to 15 years would raise the monthly payment but dramatically reduce total interest.
Practical Considerations
This calculator covers the principal-and-interest portion of a mortgage only. It does not include property taxes, homeowners insurance, private mortgage insurance (PMI), or homeowners association fees, which are often escrowed into the actual monthly payment. The annual rate is assumed fixed for the entire term; adjustable-rate mortgages would require a different, period-by-period calculation. Results are estimates for illustration and not financial advice.