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. An illustrative $300,000 loan at 6.5% for 30 years costs $1896.20 monthly in principal and interest. Total interest is about $382,633 if the rate never changes.

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

6.5% ÷ 100 ÷ 12 = 0.005416667 per month.

2
Count the payments

30 years × 12 months = 360 payments.

3
Calculate the growth factor

(1 + 0.005416667)^360 ≈ 6.991798. Keep the unrounded rate when calculating.

4
Apply the payment formula

300,000 × r × (1+r)^360 ÷ ((1+r)^360 − 1) = $1896.20 per month, before other housing costs.

Canadian insured-mortgage amortization rules and the distinction between term and amortization are described by the Financial Consumer Agency of Canada. Check your own contract for rate changes, fees and prepayment limits.

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 or 30 years (eligibility varies) Fixed term can be shorter than amortization FCAC: insured 30-year maximum for eligible first-time buyers or new builds; otherwise 25 years
🇦🇺 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? ▾
On an illustrative $300,000 loan at the same 6.5% rate, a 30-year term costs $1896.20 per month and $382,633 total interest. A 15-year term costs $2613.32 per month and $170,398 interest. Shorter terms cost more monthly but less over the full loan. Actual offers may use different rates and fees.
What does amortization mean in simple terms? ▾
Amortization is paying down debt through scheduled payments. Each payment covers interest on the remaining balance and reduces principal. On a $200,000, 30-year loan at 5%, the first payment of $1073.64 includes $833.33 interest and $240.31 principal. The balance falls as later payments shift toward 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 reduces the principal you borrow. On a $300,000 home at 6.5% for 30 years, borrowing the full price gives $1896.20 in monthly principal and interest. A 20% down payment ($60,000) reduces the loan to $240,000 and this payment to $1516.96. Taxes, insurance and any mortgage insurance are separate.
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.

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WorldCalculators.org. (2026, September 23). How to Calculate Mortgage Payments: P&I Formula Explained. https://worldcalculators.org/learning/how-to/mortgage-payments/

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@misc{worldcalculators2026learninghowtomortgagepay,
  title        = {How to Calculate Mortgage Payments: P&I Formula Explained},
  author       = {{WorldCalculators.org}},
  year         = {2026},
  howpublished = {\url{https://worldcalculators.org/learning/how-to/mortgage-payments/}}
}

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