The mortgage payment formula
Monthly Payment = P × [r(1+r)ⁿ] / [(1+r)ⁿ − 1]
Why early payments are mostly interest
In the early years of a 30-year mortgage, most of your payment goes to interest. A $400K loan at 6.5% pays ~$2,528/month — but in month 1, $2,167 is interest and only $361 is principal.
How a 1% rate change moves your payment
Use the calculator above to see how a 1% rate change affects your monthly payment. On a $400K loan, the difference between 5.5% and 6.5% is about $250/month ($90K over the life of the loan).
The true lifetime cost of a mortgage
You take a $500K, 30-year mortgage at 7%. Your total payments over 30 years will be approximately:
Why early extra principal payments pay off
Should you prepay a below-market mortgage
You have a $500K mortgage at 3.5% (30yr, fixed) with 25 years remaining. Current rates: 7%. Should you prepay from excess cash?
Check your understanding
Sit with the ideas.
A couple earns $12,000/month gross and wants to buy a $500,000 home with 10% down. Their other debts total $1,200/month. The mortgage rate is 7% for 30 years. What is their monthly mortgage payment (approximately), and where do they land against the traditional 43% DTI underwriting guideline?
Why: