How mortgage payments work
Every mortgage payment is split between interest and principal. In the early years of a loan, the vast majority of each payment goes to interest — not equity. This is because interest is calculated on the outstanding balance, which starts at its highest point and declines only as you pay down principal.
This calculator uses the standard amortization formula to compute your fixed monthly payment and breaks down every year of your loan so you can see exactly how the interest-to-principal ratio shifts over time.
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Frequently Asked Questions
What is a good mortgage interest rate?
Mortgage rates fluctuate with the broader interest rate environment. Historically, 30-year fixed rates have averaged around 7–8%. Rates below 5% (common from 2010–2022) were unusually low. Your personal rate depends on your credit score, down payment, loan type, and lender. A score above 740 typically qualifies for the best rates.
Should I choose a 15-year or 30-year mortgage?
A 15-year mortgage has a lower interest rate and builds equity much faster, but requires higher monthly payments. A 30-year mortgage offers lower payments and more cash flow flexibility, at the cost of significantly more total interest paid. If you can comfortably afford the 15-year payment, the interest savings are substantial — often hundreds of thousands of dollars over the life of the loan.
How much house can I afford?
A common rule of thumb is that your total housing costs (mortgage, taxes, insurance) should not exceed 28% of your gross monthly income. Lenders typically cap total debt payments (the "back-end ratio") at 43%. Use this calculator to work backward — plug in different house values until the monthly payment fits comfortably within 28% of your income.
What is included in a monthly mortgage payment?
This calculator shows the principal and interest (P&I) portion only. Your actual monthly payment to the lender will also typically include property tax (escrowed) and homeowner's insurance — together called PITI. If your down payment is under 20%, private mortgage insurance (PMI) may also be added, typically 0.5–1% of the loan annually.
How does making extra principal payments affect my loan?
Extra principal payments reduce your outstanding balance faster, which lowers future interest charges and shortens your loan term. Even small additional monthly payments can save tens of thousands in interest over a 30-year loan. Contact your lender to ensure extra payments are applied to principal, not prepaid interest.