The formula
Monthly payment = L × r × (1 + r)^n ÷ ((1 + r)^n − 1). L is the loan, r is the monthly interest rate (annual rate ÷ 12) and n is the number of monthly payments.
Worked example
A 280,000 loan at 6.5 percent for 30 years: r is 0.065 ÷ 12, about 0.005417, and n is 360. The payment works out to roughly 1,770 per month for principal and interest. Over 30 years you would pay about 637,000 in total, so around 357,000 of that is interest.
What else goes into the monthly bill
- Property tax, often charged by the year and paid monthly.
- Home insurance.
- Association or service fees.
- Mortgage insurance if your deposit is small, depending on the country.
How to pay less
- A larger deposit lowers the loan.
- A shorter term has a higher payment but far less interest.
- Even a small rate drop saves a lot over decades.
Try your own numbers
Enter your price, deposit, rate and term in the mortgage calculator and see the payment, total interest and how the balance falls over time.
Fixed or variable rate
With a fixed rate the payment on principal and interest stays the same for the fixed period. With a variable rate it can go up or down when the lender’s rate changes, so budget for a higher payment. Compare the options by entering both rates into the calculator.
Questions to ask your lender
- What is the full cost including fees, not just the rate?
- Can I make extra payments without a penalty?
- What happens when the fixed period ends?
- How much will taxes and insurance add each month?