How Mortgage Payments Work
7 min read · Updated September 26, 2026 · by the SolveCalcPro editorial team
A fixed-rate mortgage has the same monthly payment for the whole term, yet the split between interest and principal changes every month. Knowing how that works helps you compare loans and decide whether extra payments are worth it.
The payment formula
M = L × i ÷ (1 − (1 + i)−n) where L is the loan amount, i is the monthly interest rate and n is the number of months. For a $240,000 loan at 6.5% over 30 years, i = 0.065 ÷ 12 and n = 360, so M = $1,516.96. Try it in the mortgage calculator.
Amortization: where each payment goes
Each month the interest is charged on the remaining balance and the rest of the payment reduces principal. In month one the interest is 240,000 × 0.065 ÷ 12 = $1,300, leaving only $216.96 for principal. Over the first year about $15,521 of your payments go to interest.
| After | Remaining balance |
|---|---|
| 0 years | $240,000 |
| 5 years | $224,666 |
| 10 years | $203,463 |
After five years you have repaid only about $15,300 of the principal, which is why early extra payments are so effective.
Term: 15 years versus 30 years
| $240,000 at 6.5% | Monthly payment | Total interest |
|---|---|---|
| 30 years | $1,516.96 | $306,107 |
| 15 years | $2,090.66 | $136,318 |
The 15-year loan costs about $574 more per month but saves roughly $170,000 in interest.
Down payment and rate
On a $300,000 home at 6.5% for 30 years, 5% down means borrowing $285,000 and paying about $1,801 a month, against $1,517 for 20% down. Lowering the rate to 5.5% with 20% down gives about $1,363. Small differences in the rate change the payment noticeably.
What is not in the principal-and-interest payment
- Property tax and homeowners insurance, often collected monthly in escrow.
- Private mortgage insurance when the down payment is below 20%.
- HOA dues, maintenance and closing costs.
Ask your lender for a full monthly cost estimate. Our tool covers principal and interest only.
Ways to reduce total interest
Make extra principal payments (see the loan calculator, which shows the savings), choose a shorter term if you can afford it, put down more, or refinance if rates fall enough to cover the fees.
Practice questions
Test yourself, then tap to check. Answers are calculated by the tools linked below.
- A $450,000 home, 10% down, 7% rate, 30 years. What is the monthly principal and interest?
Show answer
Monthly payment (principal + interest): $2,694.48
- A $15,000 car loan at 7.5% over 4 years. What is the payment?
Show answer
Monthly payment: $362.68
- $5,000 at 5% compounded yearly for 15 years, no contributions.
Show answer
Future value: $10,394.64
Frequently asked questions
Why is so much of my early payment interest?
Interest is charged on the full balance, which is highest at the beginning, so it takes most of the early payments.
Does an extra payment reduce interest?
Yes, if it is applied to principal. It lowers the balance that future interest is charged on.
What is amortization?
The schedule that spreads a loan into equal payments, gradually shifting from mostly interest to mostly principal.
Is a 15-year mortgage always better?
It saves interest but needs a higher payment. Choose what fits your budget and other goals.
Try it yourself
Mortgage CalculatorEstimate a monthly mortgage payment, total interest and total cost.Loan CalculatorEstimate loan payments and see how extra payments cut interest and time.Compound Interest CalculatorSee how savings grow with compounding and regular contributions.Keep learning
Written and reviewed by the SolveCalcPro editorial team. Spot a mistake? Tell us. See our editorial policy. Finance content is educational and not financial advice; see the disclaimer.