Financial education
How Mortgage Payments Are Calculated
Mortgage payments are commonly calculated from principal, interest rate, and term, with taxes and insurance often handled separately.
How the math works
Mortgage payments use the same amortization formula as any installment loan, but the monthly figure usually excludes property tax, homeowners insurance, and PMI, which are often collected separately in an escrow account.
Worked example
A $350,000 mortgage at 6.75% over 30 years has a principal-and-interest payment of about $2,270/month. Adding a typical 1.1% property tax and $150/month insurance can push the real monthly cost closer to $2,740.
What to watch for
- The advertised rate often excludes taxes, insurance, and HOA fees
- PMI usually disappears once you reach 20% equity, which changes the effective payment over time
- Points paid upfront lower the rate but raise the closing cost — compare the break-even point
Practical takeaway
Always compare the full monthly cost (principal, interest, taxes, insurance) against your budget, not just the headline principal-and-interest number.