How to Calculate a Mortgage — Complete Guide 2026

What Is a Mortgage?

A mortgage is a loan from a bank or lender used to purchase real estate (house, apartment, land). The lender pays the property price, and you repay in monthly installments over many years.

How to Calculate Monthly Payments

The monthly payment is calculated using this formula:

M = P × [r(1+r)^n] ÷ [(1+r)^n - 1]

Where: M = monthly payment, P = loan amount, r = monthly interest rate, n = number of payments

Practical Example

Property price: $200,000 with $40,000 down payment at 5.5% interest for 25 years:

Loan amount: $160,000
Monthly payment: approximately $982
Total repayment: approximately $294,600
Total interest: approximately $134,600

Important Tips

✅ Compare lenders — interest rates vary significantly
✅ Use our Mortgage Calculator
✅ Make a larger down payment to reduce interest
✅ Ask about fixed vs variable rates

Try the Calculator Now

Use our Mortgage Calculator to find your monthly payments. Also try the Loan Calculator for personal loans.

How to Calculate Mortgage Amortization Schedule

An amortization schedule splits each monthly payment into interest and principal. Early payments cover mostly interest because the loan balance is highest at the start. Each month, interest equals the remaining balance multiplied by the monthly rate; principal equals the payment minus that interest; the new balance equals the old balance minus that principal.

For a $160,000 loan at 5.5% annual interest over 25 years, the monthly rate is 0.055 ÷ 12 = 0.0045833 and the payment is about $982. Month 1 interest = $160,000 × 0.0045833 = $733.33, so principal = $982 − $733.33 = $248.67, leaving a balance of $159,751.33. Month 2 interest = $159,751.33 × 0.0045833 = $732.19, so principal = $249.81 and the balance drops to $159,501.52.

Over 300 months, the principal portion slowly grows while the interest portion shrinks. Use the Mortgage Calculator to generate the full 300-row schedule automatically and show total interest for any rate you enter.

Fixed vs Variable Mortgage Rates: Which Is Better for You?

A fixed-rate mortgage keeps the same interest rate for the full term, so the payment stays unchanged. A variable-rate mortgage changes at set intervals based on a benchmark rate, so the payment rises or falls with market rates.

Compare a $160,000 loan over 25 years. At a fixed 5.5% rate, the payment is about $982 every month. If a variable loan starts at 5.0%, the payment is about $935; if the rate later rises to 6.0%, the payment jumps to about $1,031. A 1-percentage-point increase adds roughly $96 to the monthly payment on this loan.

Fixed rate: predictable payment, often higher starting rate, easier budgeting.
Variable rate: lower initial payment possible, but payment can rise after the fixed period.
Choose fixed when you will keep the loan long term; choose variable only if you can absorb increases.

Run both scenarios in the Loan Calculator by entering the rates you are offered.

How Much Mortgage Can I Afford on My Salary?

A common lender guideline limits housing costs to 28% of gross monthly income and total debt to 36%. Gross income is before taxes and deductions. First multiply your monthly gross income by 0.28 to find the maximum housing payment.

For a $5,000 gross monthly income, 0.28 × $5,000 = $1,400. If the 25-year mortgage rate is 5.5%, the $982 payment on a $160,000 loan means each $1 of payment supports about $160,000 ÷ $982 = $162.93 of loan. A $1,400 payment supports roughly $1,400 × $162.93 = $228,100 in principal.

Add your planned down payment to that principal to get the maximum purchase price. If you have $57,000 saved for a down payment, the price would be about $228,100 + $57,000 = $285,100. Use the Mortgage Calculator with different salaries and rates to test your limit.

Frequently Asked Questions

How much mortgage can I get with a $60,000 salary?

$60,000 per year equals $5,000 gross per month. The 28% housing guideline gives a maximum payment of $1,400. At a 5.5% rate over 25 years, that supports about $228,000 in loan principal. With a 20% down payment, the maximum purchase price is about $285,000 before property taxes and insurance. Lenders also check credit history and other debts.

How to calculate mortgage interest rate from monthly payment?

The standard payment formula cannot be rearranged to solve for the rate directly. You enter the loan amount, term, and monthly payment into a calculator that tests rates until the formula matches your payment. Adjust the rate field in the mortgage calculator until the displayed payment equals the payment on your loan statement.

What is the difference between mortgage APR and interest rate?

The interest rate is the yearly cost of borrowing the principal only. The annual percentage rate (APR) adds lender fees, points, and some closing costs to that rate. Two loans with the same 5.5% interest rate can have different APRs, such as 5.7% versus 5.9%, because the fees differ. Compare APRs for loans with the same term.

Is mortgage insurance required for a low down payment?

Conventional loans usually require private mortgage insurance when the down payment is below 20% of the purchase price. FHA loans require an upfront and annual mortgage insurance premium. The exact requirement depends on loan program and lender. Removing PMI may require reaching 20% equity. Enter a lower down payment in the calculator to see the effect on monthly principal and interest.

Related tools and guides

Mortgage Calculator — computes monthly payment, total interest, and full amortization schedule.
Loan Calculator — handles fixed-rate loans for any term and amount.
EMI Calculator — calculates equal monthly installments for home or personal loans.
Simple vs compound interest guide — explains how mortgage interest accrues over time.