The formula, and what it does not include
An amortizing payment is the amount that pays a balance to zero over a fixed number of equal periods at a fixed rate. It is the loan amount times the monthly rate times (1 + monthly rate) raised to the number of months, divided by that same power minus one. For $300,000 at 6.5 percent over 360 months the monthly rate is 0.00541666, the payment works out to $1,896.2041, and the total of 360 such payments is $682,633.47 against a $300,000 balance. Total interest is $382,633.
That is more interest than principal, which surprises people the first time they see it, and it is entirely a consequence of the term. The same loan over fifteen years pays $2,613.32 a month and $170,398 of interest, less than half as much, because the balance spends far less time outstanding.
| $300,000 at 6.5% | Monthly P&I | Total interest |
|---|---|---|
| 30-year term | $1,896.20 | $382,633 |
| 20-year term | $2,236.72 | $236,813 |
| 15-year term | $2,613.32 | $170,398 |
Why the early payments barely move the balance
Interest is charged on the balance outstanding, so it is largest at the start. On the loan above, the first payment of $1,896.20 is $1,625.00 of interest and $271.20 of principal. Ten years in, month 120 is about $1,443 of interest and $453 of principal, and the balance has fallen from $300,000 to roughly $254,000. Only past the midpoint of the term does more of each payment go to principal than to interest. The schedule on this page shows the first three months, every twelfth month and the last, which is enough to see the crossover without printing 360 rows.
This is also why an extra payment early is worth far more than the same payment late. A dollar of principal paid in month 12 cancels every future interest charge that dollar would have generated for 348 months. The same dollar in month 348 cancels twelve months of it.
The three structures
- Amortizing. Same payment every month, with the split shifting from interest to principal. Standard for mortgages and car loans, and the easiest to budget against.
- Equal principal. The same slice of principal every month, with interest calculated on whatever is left. The first payment is the largest and every one after is smaller. Total interest is lower than the amortizing equivalent because the balance drops faster, but the early payments demand more cash.
- Interest only with a balloon. You pay only interest and the entire principal is due on the last day. The monthly outgoing is smallest and the total interest is largest, and it only works if there is a concrete plan for the balloon.
What the payment cannot tell you
Two loans with an identical monthly payment can cost thousands of dollars apart, because the payment formula sees only the amount, the rate and the term. It does not see origination fees, discount points, a prepayment penalty, a rate that adjusts in year six, or mortgage insurance that falls away at a certain equity threshold. APR exists precisely to fold some of those into a comparable figure, and even APR does not capture all of it. Get the full cost sheet before comparing, and treat the payment on this page as one input to that comparison rather than the answer to it.
Questions people ask
Is $1,896.20 a month correct for $300,000 at 6.5% over 30 years?
Yes. The unrounded figure is $1,896.2041 a month. Multiply by 360 payments and you get $682,633.47, so the interest is $382,633.47 on top of the $300,000 borrowed. Lenders normally round the scheduled payment to the cent and adjust the final payment by a few cents so the balance lands exactly at zero, which is why your statement may show $1,896.20 with a slightly different last payment. This is principal and interest only, with nothing for taxes, insurance or escrow.
What does the payment leave out?
Property taxes, homeowners or hazard insurance, private mortgage insurance if the down payment was under the threshold, flood insurance where it applies, HOA or condo dues, and any escrow shortfall the servicer collects after a tax reassessment. Depending on the state and the property these can add anywhere from a couple of hundred dollars a month to more than the principal-and-interest payment itself. The optional field on this page lets you add your own estimate so you can see the real monthly outgoing rather than the advertised one.
How much does a quarter point actually cost?
On $300,000 over thirty years, moving from 6.50 to 6.75 percent raises the payment from $1,896.20 to $1,945.79, which is $49.59 a month and about $17,850 over the full term. Moving from 6.50 down to 6.25 lowers it to $1,847.15, saving $49.05 a month. That is the arithmetic of the rate alone. Whether paying points to buy the lower rate is worth it depends on how long you keep the loan, which is a different calculation and not one this page makes.
Does paying extra each month help, and by how much?
It shortens the term rather than lowering the payment, and the effect is larger than most people assume. On the $300,000 loan at 6.5 percent, an extra $200 a month retires it in about 23 years instead of 30 and cuts roughly $103,000 of interest. This calculator does not model extra payments directly; to approximate one, shorten the term until the payment matches what you would actually pay and read the total interest off that. Check first that the loan has no prepayment penalty and that the servicer applies extra money to principal rather than holding it as a prepaid regular payment.