How the payment is worked out
The principal and interest portion uses the standard amortisation formula:
M = P × [ r(1+r)n ] / [ (1+r)n − 1 ]
P is the amount borrowed — the property price minus your deposit — r is the annual rate divided by twelve, and n is the term in months. Property tax and insurance, if you enter them, are divided by twelve and added on top. Lenders call the combined figure PITI: principal, interest, taxes and insurance.
Why the first years feel like standing still
On a thirty-year mortgage at a typical rate, the first payment is roughly three-quarters interest. The balance moves very little for the first several years, which is why homeowners are often surprised at how much they still owe after a decade. The crossover point, where more of the payment goes to principal than to interest, usually arrives somewhere between years twelve and eighteen depending on the rate.
Open the schedule above and look at payment one against payment two hundred. The payment is identical; the split is unrecognisable.
Term length is the biggest lever
Shortening the term raises the monthly payment but reduces total interest sharply, because the balance spends far less time accruing. A fifteen-year term typically costs substantially more per month than a thirty-year one, yet can save a very large multiple of that difference over the life of the loan. Run both in the calculator and compare the total interest figure rather than the monthly one.
What is not included
- Mortgage insurance. With a deposit below roughly 20%, most lenders require insurance until you reach that threshold.
- Service charges and ground rent on leasehold or shared-ownership properties.
- Closing costs, legal fees, survey and stamp duty or transfer tax, all payable up front.
- Rate changes on a variable, tracker or adjustable mortgage after the fixed period ends.
Budget for these separately. They are frequently the difference between an affordable purchase and an uncomfortable one.
Frequently asked questions
How is a monthly mortgage payment calculated?
The principal and interest portion uses M = P x [r(1+r)^n] / [(1+r)^n - 1], where P is the amount borrowed, r is the annual rate divided by twelve and n is the term in months. Property tax and insurance are added on top, divided by twelve.
Why is most of my early payment interest?
Interest is charged on the outstanding balance, which is near its maximum at the start. On a thirty-year term the first payment is often around three-quarters interest, and the split only shifts substantially after a decade or more.
Does a shorter term really save that much?
Yes. A shorter term raises the monthly payment but cuts total interest sharply, because the balance spends far less time accruing. Compare the total interest figure rather than the monthly payment.
Does this include mortgage insurance and closing costs?
No. It covers principal, interest and, if entered, property tax and home insurance. Mortgage insurance, legal fees, survey costs and transfer taxes are separate.
Is my financial information sent anywhere?
No. The calculation runs entirely in your browser. Nothing you type is transmitted or stored.