Mortgage Calculator

Amortization Schedule

What is a mortgage?

A mortgage is a loan secured against a property. The lender — typically a bank or credit union — provides the funds to purchase a home, and the borrower repays the loan with interest over an agreed term, usually 15 or 30 years. If the borrower stops making payments, the lender has the legal right to repossess the property through a process called foreclosure.

Unlike most loans, a mortgage payment is structured so that the same amount is paid every month — but the split between interest and principal changes over time. In the early years, the majority of each payment goes toward interest. As the loan matures, the balance shifts and more of each payment reduces the actual debt. This is called amortization.

Understanding this dynamic is essential. On a 30-year, $400,000 mortgage at 6.5%, the borrower will pay roughly $510,000 in interest alone — more than the original purchase price. The amortization table above makes this visible, month by month.

How your monthly payment is calculated

The standard mortgage payment formula (for fixed-rate loans) is:

Where:

• M — monthly payment (principal + interest only)
• P — loan principal (home price minus down payment)
• r — monthly interest rate (annual rate ÷ 12)
• n — total number of payments (years × 12)

Worked example: $320,000 loan at 6.5% for 30 years:

Property taxes, insurance, PMI, and HOA fees are then added on top of this figure to arrive at your true monthly housing cost.

Fixed-rate vs. adjustable-rate mortgages

The two main mortgage types handle interest rates very differently — and the choice has a major impact on long-term cost and risk.

An ARM can save money if you sell or refinance before the adjustment period begins. However, if rates rise sharply, payments can increase significantly — sometimes by hundreds of dollars per month.

How extra payments accelerate your payoff

Extra payments go directly to reducing your principal balance, which reduces the interest charged in every subsequent month. Even modest additional payments can cut years off a 30-year mortgage and save tens of thousands in interest. Here is what an extra $200/month does on a $320,000 mortgage at 6.5%:

An extra $200/month saves over $92,000 in interest and cuts more than 5 years off the loan. The earlier in the loan term you make extra payments, the greater the impact — because you reduce the principal on which future interest is calculated.

Loan term comparison: 15 vs. 30 years

The choice between a 15- and 30-year term is one of the most significant decisions in the mortgage process. Here is how they compare on a $320,000 loan:

The 30-year mortgage costs $246,000 more in total interest but keeps monthly payments $662 lower — freeing cash for other investments. Whether the 15-year is better depends on whether you can reliably invest that difference at a higher return than your mortgage rate.

Understanding PMI and how to avoid it

Private Mortgage Insurance (PMI) protects the lender — not you — if you default on the loan. It is typically required when your down payment is less than 20% of the purchase price.

PMI usually costs between 0.5% and 1.5% of the loan amount per year, added to your monthly payment. On a $320,000 loan at 1%, that is an extra $267/month — money that builds no equity and vanishes once you hit 20% equity.

Practical tips to reduce your mortgage cost

• Shop at least 3–5 lenders. Studies show that getting five quotes instead of one saves an average of $3,000 over the first five years. Lenders compete on rate, points, and fees — comparison is the single most powerful lever you have before signing.
• Improve your credit score before applying. Moving from a 680 to a 740 credit score can reduce your rate by 0.5% or more. Pay down revolving balances and avoid opening new accounts in the months before you apply.
• Pay points strategically. One mortgage point costs 1% of the loan and typically lowers the rate by 0.25%. Calculate the break-even period: divide the point cost by the monthly savings. If you plan to stay longer, points often pay off.
• Make one extra payment per year. Paying 13 monthly payments instead of 12 — or splitting your payment biweekly — shaves roughly 4–6 years off a 30-year mortgage without requiring a formal refinance.
• Refinance when rates drop significantly. The general rule of thumb is to refinance when you can reduce your rate by at least 0.75–1%, and when you plan to stay long enough to recoup closing costs (typically 2–3 years).
• Keep housing costs below 28% of gross income. Lenders use this as a guideline (often called the front-end ratio). Staying below this threshold leaves room for savings, emergencies, and other financial goals — and makes you a stronger borrower.

Frequently asked questions