How to Calculate a Mortgage Payment (With Worked Examples)

By the SAA Tool editor, an IT support engineer · Last reviewed 9 October 2026 · 7 min read

On a standard repayment mortgage you pay the same amount every month, and each payment covers that month's interest and pays off a slice of the loan. The amount comes from one formula. With it you can check a lender's quote, see what another rate or term would cost, and judge whether overpaying is worth it. Every figure below can be checked with the formula or our Mortgage Calculator.

The formula

M = P × r × (1 + r)^n ÷ ((1 + r)^n − 1)

• M is the monthly payment.
• P is the amount you borrow: the price minus your deposit (down payment).
• r is the monthly rate: the yearly rate as a decimal, divided by 12. So 5% a year is 0.05 ÷ 12 = 0.0041667.
• n is the number of monthly payments: 25 years is 300.

At a 0% rate the formula divides by zero, and the payment is simply P ÷ n.

A worked example

A home costs 400,000 and you put down 20%, so you borrow 320,000 at 5% a year over 25 years. The currency makes no difference to the maths.

1. Monthly rate: r = 0.05 ÷ 12 = 0.0041667.
2. Number of payments: n = 25 × 12 = 300.
3. (1 + r)^300 = 3.48129.
4. r × 3.48129 = 0.0145054, and 3.48129 − 1 = 2.48129.
5. 0.0145054 ÷ 2.48129 = 0.0058459.
6. M = 320,000 × 0.0058459 = 1,870.69 a month.

Over 300 payments you pay 561,206.44 in all, so the interest is 241,206.44, about three-quarters of the amount borrowed. Keep every decimal place until the end: rounding r to 0.0042 gives 1,878.15, which is 7.46 a month too much.

Where each payment goes

Each month the lender charges interest on the balance, and the rest of your payment reduces it. In month one the interest is 320,000 × 0.05 ÷ 12 = 1,333.33, so only 537.35 goes towards the loan. As the balance falls, so does the interest, and more of each payment clears the debt. The US CFPB describes amortisation the same way: early on most of the payment is interest, and near the end most of it pays off the last of the loan.

The payment only tips towards the loan in month 135, more than 11 years in. After 10 years you have paid 224,482.58 but cleared only 83,441.68 of the debt, which matters if you might sell or switch lender early.

How the term and the rate change the cost

Stretching 25 years to 35 cuts the payment by 255.69 a month but adds 117,093.79 of interest. The rate matters just as much:

Going from 5% to 6% adds 191.07 a month and 57,322.91 over the term.

Deposits and loan-to-value

Loan-to-value (LTV) is the loan as a share of the price: 320,000 on a 400,000 home is 80%. At the same 5% over 25 years:

In practice a lower LTV often gets a lower rate as well: the UK's MoneyHelper says a larger deposit usually means a better deal, with the most competitive rates typically at 60% LTV. The minimum deposit, and what a small one costs you, depend on the country:

• US: a conventional loan with less than 20% down may need private mortgage insurance, which protects the lender, not you.
• Canada: the minimum down payment is 5% of a price up to $500,000, plus 10% of the part from $500,000 to $1.5 million, and 20% at $1.5 million or more. A $600,000 home needs at least $35,000, and under 20% down you'll typically need mortgage loan insurance.
• Ireland: the Central Bank's rules set a minimum 10% deposit for most buyers (30% for buy-to-let) and limit first-time buyers to 4 times gross income.
• UK: MoneyHelper says you usually need at least 5% to 10%.

Costs the formula leaves out

The formula covers the loan only. What comes on top depends on where you live:

• Property tax and home insurance. Many US lenders collect these through an escrow account as part of the monthly payment, which then changes when the tax or premium changes.
• Mortgage insurance on a small deposit, as above.
• Building or homeowners' association charges on many flats and apartments.
• One-off costs such as arrangement fees, valuation or survey, legal fees and transfer taxes such as stamp duty. If a fee is added to the loan, you pay interest on it too.

Overpayments

Anything extra goes straight off the balance, so every later month's interest is smaller. Adding 200 a month to the example saves 46,987.31 of interest and clears the loan in 20 years 9 months, 4 years 3 months early.

MoneyHelper's lump-sum example: on £250,000 at 5% with 25 years left, paying off £5,000 cuts the interest by £11,970 and finishes 11 months sooner. The formula gives about £12,000 and 11 months for a lump sum paid at the start; the small gap comes down to when the lump sum is paid. MoneyHelper also notes that many lenders allow overpayments of up to 10% a year without penalty; above that, an early repayment charge can eat the saving. Ask whether an overpayment shortens your term or lowers your payment.

Products the formula doesn't cover

• Interest-only. You pay only the interest, P × r: 320,000 × 0.05 ÷ 12 = 1,333.33 a month. After 25 years you've paid 400,000 of interest and still owe the full 320,000. MoneyHelper says very few are now offered.
• Variable, tracker and adjustable rates. The formula assumes one rate for the whole term. When the rate changes, the payment is worked out again on the balance and term left.
• Islamic home finance. Sharia-compliant home purchase plans avoid interest. MoneyHelper describes three types: Ijara (the provider buys the home and your payments cover rent and buying it over time), Murabaha (the provider buys the home and sells it to you at a higher price, paid in fixed instalments) and Diminishing Musharaka (you co-own the home and each payment buys more of the provider's share, so the rent part falls). The contract sets the payments, so use the provider's own schedule and compare the total amount payable.

How to do it with our Mortgage Calculator

1. Open the Mortgage Calculator. Enter the Property price and choose your Currency.
2. Enter the Down payment and choose % of price or amount.
3. Type the Interest rate (% a year) and the Term (years), from 1 to 50.
4. Optionally add an Extra payment each month and your Tax, insurance, fees a month. Both are added to the monthly payment shown.
5. Results update as you type. Read the Monthly payment, the Loan with its share of the price (your LTV), Total interest and Paid off in, then the Year by year table.

The defaults are the worked example: 1,870.69 a month and 241,206.44 of interest. Type 200 as the extra payment to see the 46,987.31 saving. It runs in your browser and models a fixed-rate repayment mortgage, with interest charged monthly and any overpayment made every month from the start, so treat it as an estimate. For car or personal loans, use the Loan Calculator and see our guide to flat and reducing-balance rates. The Compound Interest Calculator shows what 200 a month would grow to if saved instead, and the Percentage Calculator turns a deposit into a percentage.

Checklist

• Use the monthly rate (yearly ÷ 12) and the number of months, not years.
• Compare total interest plus fees, not just the monthly payment.
• Add tax, insurance and any mortgage insurance to get the real monthly cost.
• Check the deposit rules and LTV bands where you're buying.
• Ask about overpayment limits and early repayment charges.
• On a variable or short fixed deal, work out the payment at a higher rate too: at 7% the example costs 2,261.69 a month.

This is general information, not financial advice. Rules, taxes and products change and differ by country, so check your lender's offer and an official source such as the CFPB (US), MoneyHelper (UK) or your own regulator, and speak to a qualified adviser before you decide.

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