How to Calculate Mortgage Payments
The formula, amortization explained simply, and why the US, UK, Canada, and Australia have very different mortgage structures.
QUICK ANSWER
Monthly payment M = P × [r(1+r)^n] ÷ [(1+r)^n − 1] — where P = loan amount, r = monthly rate (annual rate ÷ 12), n = total monthly payments. Example: $300,000 at 6.5% for 30 years → M ≈ $1,896/month. Total interest over 30 years ≈ $382,000 — more than the loan itself.
The Mortgage Payment Formula
M = P × [r(1+r)^n] ÷ [(1+r)^n − 1]
- M = monthly payment
- P = principal (loan amount)
- r = monthly interest rate = annual rate ÷ 12. (6% annual = 0.06 ÷ 12 = 0.005 monthly)
- n = total monthly payments = years × 12. (30 years = 360 payments)
1
Find the monthly rate (r)
Take the annual interest rate, divide by 100 to get decimal, divide by 12. Example: 6.5% annual → 0.065 ÷ 12 = 0.005417 per month.
2
Find total payments (n)
Multiply loan term in years by 12. 30-year mortgage → 30 × 12 = 360 monthly payments.
3
Calculate (1+r)^n
(1 + 0.005417)^360 = 6.848 (use a calculator or spreadsheet for this step).
4
Apply the formula
M = 300,000 × [0.005417 × 6.848] ÷ [6.848 − 1] = 300,000 × 0.037097 ÷ 5.848 = 300,000 × 0.006321 = $1,896.20/month.
Mortgage Structures by Country
| Country | Typical term | Fixed rate period | Key difference |
|---|---|---|---|
| 🇺🇸 USA | 30 or 15 years | Full term (30yr fixed) | Rare in the world — full-term fixed rate is the norm |
| 🇬🇧 UK | 25 years | 2–5 year deals | Borrowers remortgage every 2-5 years as deals expire |
| 🇨🇦 Canada | 25 years (insured) | 5-year fixed most common | Max 25yr amortization for insured mortgages (CMHC) |
| 🇦🇺 Australia | 25–30 years | 1–5 year fixed or variable | Variable (tracker) rates are very popular |
| 🇩🇪 Germany | 20–30 years | 10–15 year fixed | Long fixed-rate periods; very conservative LTV limits |
| 🇯🇵 Japan | 35 years | Mixed fixed/variable | 35-year terms common; very low rates historically |
Frequently Asked Questions
How much more do you pay in interest over a 30-year vs 15-year mortgage? ▾
Significantly more. Example: $300,000 at 6.5%. 30-year: monthly payment $1,896, total interest $382,000. 15-year: monthly payment $2,613, total interest $170,000. The 15-year saves $212,000 in interest, but the monthly payment is $717 higher. Most people choose 30-year for the lower monthly burden, then make extra payments when possible.
What does amortization mean in simple terms? ▾
Amortization means slowly paying off a debt through regular payments. Each payment covers two things: (1) interest on the remaining balance, (2) a small reduction in the principal. Early in the loan, most of your payment goes to interest. Near the end, most goes to principal. A $200,000 30-year loan at 5%: month 1 payment = $877 interest + $196 principal. Month 360 payment = $5 interest + $1,069 principal.
Is it better to get a 15 or 30 year mortgage? ▾
Depends on your priorities. 15-year: lower total interest cost, builds equity faster, usually lower interest rate. 30-year: lower monthly payment, more cash flow flexibility, gives you the choice to invest the difference. Many financial advisors suggest: if you can easily afford the 15-year payment, take it. If it strains your budget, go 30-year and make extra principal payments when you can.
How does the down payment affect my monthly mortgage payment? ▾
A larger down payment lowers your monthly payment because it reduces the principal (P) you borrow. Example: on a $300,000 home at 6.5% for 30 years, borrowing the full price gives M ≈ $1,896/month; a 20% down payment ($60,000) reduces the loan to $240,000, dropping the payment to about $1,517/month. A 20% deposit also typically lets you avoid mortgage insurance (PMI in the US), saving even more each month.
What is the difference between a fixed-rate and a variable-rate mortgage? ▾
A fixed-rate mortgage keeps the same interest rate (and monthly payment) for the agreed period — full term in the US, or a 2–5 year deal in the UK. A variable (or tracker/adjustable) rate moves up or down with market rates, so your monthly payment can change. Fixed rates give predictability and protect against rate rises; variable rates often start lower and benefit you if rates fall, but carry the risk of higher payments later. Variable/tracker rates are especially popular in Australia and the UK.