Payment = P·r/(1−(1+r)^−n), where r is the monthly rate and n the number of payments.
A mortgage calculator is a free online tool that estimates your monthly payment on a home loan. You enter the loan amount, the annual interest rate, and the loan term, and the calculator shows what you will pay each month. It is handy for comparing loan offers, planning a household budget, and seeing how different rates and terms change the total cost of borrowing.
A mortgage is repaid in equal monthly installments over many years. Each payment is divided into two parts: interest, the lender's charge for lending you money, and principal, the part that reduces the amount you owe. A mortgage calculator works out this split and shows how the remaining balance falls to zero over the life of the loan.
The standard formula for a fixed monthly mortgage payment is:
M = P × r(1+r)^n / ((1+r)^n − 1)
Here, M is the monthly payment, P is the loan amount (principal), r is the monthly interest rate (the annual rate divided by 12), and n is the total number of monthly payments (loan years multiplied by 12).
The payment stays the same every month, but the split between interest and principal changes. Interest is charged on the outstanding balance, so in the early years — when the balance is still large — most of each payment goes to interest and only a small part reduces the principal. Each month the balance drops a little, the interest charge shrinks, and a growing share of the fixed payment goes toward the principal. This gradual shift is called amortization.
That is why extra payments made early in a mortgage save so much: they cut the balance at the point when interest charges are at their highest, and every dollar paid early avoids years of interest on that dollar.
In this example, the figures are assumed for illustration. A borrower takes a $300,000 loan at an annual interest rate of 6% over 30 years (360 monthly payments). The monthly interest rate is 0.5%.
Applying the formula, the fixed monthly payment is $1,798.65. The very first payment is split into $1,500.00 of interest and only $298.65 of principal — showing why early payments are mostly interest. Over 30 years the borrower pays $647,514.57 in total, meaning $347,514.57 is interest alone.
With the amortizing-loan formula: payment = P·r/(1−(1+r)^−n), using the monthly interest rate and total number of payments.
Yes — it reduces the borrowed principal P, which directly lowers every monthly payment and the total interest.
