How it is calculated
With a standard amortizing loan you pay the same amount every month. The interest part is the remaining balance times the monthly rate, and the rest goes to principal, so early payments are mostly interest and later ones mostly principal.
Monthly rate r = annual rate ÷ 12 Number of payments n = years × 12 Monthly payment = loan amount × r ÷ (1 − (1 + r)^(−n)) Interest this month = remaining balance × r Principal this month = monthly payment − interest this month
Example: $300,000 at 6.5%
Of the first $1,896.20 payment on the 30-year loan, $1,625.00 is interest and $271.20 is principal. Not until year 20 does the principal portion of each payment exceed the interest.
| Loan | Monthly payment (P&I) | Total interest |
|---|---|---|
| 30-year fixed, 6.5% | $1,896.20 | $382,633 |
| 15-year fixed, 6.5% | $2,613.32 | $170,398 |
| 30-year + $200 extra a month | $2,096.20 | $279,185 (paid off in 277 months) |
15-year loans usually carry lower rates than 30-year loans, so the real gap is often wider. The extra-payment row isn’t something this calculator models; it was worked out separately with the same formula.
Mortgage terms to know
- Fixed rate vs adjustable rate (ARM): A fixed rate stays the same for the life of the loan. An ARM such as a 5/1 or 7/6 is fixed for the first 5 or 7 years, then adjusts every year or six months with an index, subject to periodic and lifetime caps. This calculator assumes the rate never changes.
- 30 years vs 15 years: A 30-year loan has a lower monthly payment and more total interest. A 15-year loan has a higher payment but usually a lower rate, so total interest drops sharply.
- Interest rate vs APR: APR adds costs such as points and lender fees to the interest rate and expresses them as a yearly rate, so it is higher than the rate. Compare the APR and total costs on each Loan Estimate.
- Points (discount points): One point costs 1% of the loan amount up front and buys a lower rate. Work out how long the lower payment takes to pay back what you spent.
- PMI: Conventional loans with less than 20% down usually require private mortgage insurance, which protects the lender. You can ask in writing to cancel it once your balance falls to 80% of the home’s original value, including through extra payments (conditions apply, such as a good payment history, no decline in the home’s value and no second lien), and it ends automatically on the date your balance is scheduled to reach 78% under the original payment schedule, as long as you are current. FHA loans follow separate mortgage insurance premium (MIP) rules.
- Escrow: Many lenders collect property taxes and homeowners insurance with your monthly payment and pay them for you, so your actual payment (PITI) is higher than the principal and interest shown here.
What isn’t included
- Property taxes, homeowners insurance, PMI, HOA dues and closing costs are not included.
- ARM rate changes, prepayments and refinancing are not modeled. Check your Loan Estimate and Closing Disclosure for any prepayment penalty.
- Mortgage interest is deductible only if you itemize, and only on qualifying loan amounts. If you take the standard deduction, there is no tax effect.
- Rates vary widely with credit score, down payment, loan type and timing. The 6.5% default is only an example, not a quote of market rates.
FAQ
Does the monthly payment include taxes and insurance?
No — the result is principal and interest (P&I) only. If you have an escrow account, property taxes and homeowners insurance are added to your payment; divide the yearly amounts by 12 and add them.
How much do extra payments save?
Paying principal early cuts the interest that would have accrued on it. Adding $200 a month to a $300,000, 6.5%, 30-year loan pays it off in about 23 years and 1 month and saves about $103,000 in interest. Confirm with your servicer that extra payments go to principal.
Why is the APR higher than the interest rate?
APR includes costs such as points and origination fees on top of the interest, expressed as a yearly rate. Two loans with the same rate can have different APRs if their fees differ.
Should I pick a 15-year or a 30-year loan?
There’s no single answer. A 15-year loan costs less interest but has a bigger monthly payment; a 30-year loan keeps the payment lower and leaves more room in your budget. Compare both in the calculator.