How To Calculate Mortgage Payments By Hand?

Calculating mortgage payments isn’t hard if you know the figures and formula.


For many people, purchasing a home is a significant milestone in life. However, understanding the financial aspects of homeownership, particularly mortgage payments, can be complex. While numerous online calculators and tools are available to determine mortgage payments, grasping the underlying mathematics can provide valuable insights and a better understanding of your financial commitments.

In most cases, homeowners who have borrowed money to purchase a house make a single monthly payment to their mortgage lender. However, this payment, commonly called the monthly mortgage payment, encompasses more than just the loan repayment and interest costs.

The monthly payment for numerous American homeowners with mortgages includes additional expenses such as private mortgage insurance, homeowners insurance, and property taxes. These components, collectively known as PITI (principal, interest, taxes, and insurance), contribute to the overall payment.

The total monthly payment can be estimated manually using a standard formula, although many people find it more convenient to utilize online mortgage calculators. Regardless of the chosen approach, certain essential factors must be considered to obtain an accurate estimate. This article aims to clarify the mathematics behind mortgage payments.

By the end of this article, you’ll have the confidence to calculate mortgage payments by hand, enabling you to take a more proactive approach to managing your homeownership finances.

What information and tools will I need to calculate mortgage payments by hand?

You’ll need the following information and tools to calculate mortgage payments by hand:

 Image Source: Mortgage Calculator
Image Source: Mortgage Calculator
  • Principal Mortgage Amount: Determine the initial loan amount borrowed to purchase the property.
  • Annual or Monthly Interest Rate: Obtain the interest rate associated with your mortgage. Ensure you have the correct value as an annual percentage rate (APR) or a monthly interest rate.
  • Loan Term: Determine your mortgage duration, usually in years. Convert it into the number of monthly payments.
  • Private Mortgage Insurance: If applicable, determine whether you are required to have PMI. This insurance protects the lender in case of default and is typically required if your down payment is less than 20% of the home’s value.
  • Property Taxes: Consider the cost of property taxes associated with the property. Property tax rates vary depending on the location and can significantly impact your monthly payment.
  • Homeowners Insurance: Determine the cost of homeowners insurance, which covers potential damages to the property. This is typically a requirement from the mortgage lender.
  • Amortization Schedule: Create or access an amortization schedule, which outlines the breakdown of each payment over the life of the loan. This schedule provides valuable information on allocating principal and interest portions for each payment.
  • Loan Payment Formula: Familiarize yourself with the formula used to calculate the monthly mortgage payment. The formula typically involves the principal amount, interest rate, loan term, and sometimes PMI.

This information will give you the necessary inputs to accurately perform the manual calculations required to determine your monthly mortgage payment.

How to calculate Mortgage Payments manually?

Calculating your mortgage manually allows you to understand how various factors interact to determine your monthly payment. These factors include the loan amount, interest rate, and repayment timeline.

 Image Source:
Image Source:

The formula for calculating your mortgage payment is

M = P [ i(1 + i)^n ] / [ (1 + i)^n – 1].


  • M = Monthly payment
  • P = Loan Amount
  • i = Monthly interest rate as a decimal
  • n = Total number of months in the repayment timeline

For example, let’s assume a loan amount of $80,000 (P) with an annual interest rate of 5% (i). Since the interest rate is annual, we divide it by 12 to get the monthly interest rate, which is 5%/12 = 0.00417

Suppose the loan term is ten years, which equals 120 months (n). Using these values, the equation becomes:

M = 80,000[0.00417(1=0.00417)^120]/[(1+0.00417)^120-1].

  • First, calculate (1+0.00417)^120, which equals approximately 64767—substituting this back into the equation.
    • M = 80,000 [0.00417(1.64767)]/[0.64767].
  • Next, simplify the math within the brackets, resulting in 80,000*0.0106 = 848.
  • Therefore, your monthly payment for a ten-year mortgage would be around $848. Remember that we rounded the numbers so that the actual amount may differ slightly.

The simplified equation only considers the loan amount, interest rate, and repayment timeline. Other costs like down payments, homeowner’s insurance, or property taxes should be incorporated separately to determine the monthly payment.

Consider additional costs

To incorporate additional variables, adjust the equation accordingly. For instance, if you make a 20% down payment upfront, subtract that amount from P (loan amount) and adjust the total number of months (n) accordingly. Suppose the down payment is $16,000 in the first month. Using the previous example, the equation becomes:

M = (80,000 – 16,000) [0.00417(1+0.00417)^119]/[(1=0.00417)^119-1].

By accounting for the down payment and adjusting the repayment timeline, you can calculate the monthly payment accurately.

How do you calculate the Total Cost of a Mortgage?

Calculating the overall expense of your loan becomes a simple task once you have determined your monthly payment amount. The following inputs, which were employed in the aforementioned monthly payment calculation, are required:

 Image Source: Japan-Property
Image Source: Japan-Property
  • N = Number of periods (number of monthly mortgage payments)
  • M = Monthly payment amount derived from the previous segment
  • P = Principal amount (the total borrowed amount minus any down payments)

To ascertain the total interest accrued over the mortgage term, multiply your monthly payment amount by projected payments. This will yield the combined principal and interest paid throughout the loan’s duration.

Mortgage Calculator Amortization

Amortization is an accounting term that refers to paying off the loan in monthly installments, and over time, the principal amount increases, whereas the interest amount decreases.

A mortgage amortization calculator is used to:

  1. Calculate the amount to be repaid to ascertain the current or future principal balance.
  2. Calculate the additional monthly payment required to fully repay the mortgage within a specific period, such as 22 years instead of 30 years.
  3. Determine the total interest paid throughout the mortgage term or within a particular year while considering potential variations based on the timing of your payments.
  4. Evaluate the accumulated equity in your home.

You can use the Amortization Mortgage Calculator available online to learn the exact values.

How do I create an amortization schedule?

Follow the following steps to create an amortization schedule.

 Image Source:
Image Source:

Prepare your amortization schedule.

An amortization schedule is a valuable tool that provides a breakdown of your monthly mortgage payments, detailing the allocation towards principal and interest and displaying the remaining balance at the end of each month. Begin by setting up a spreadsheet program and inputting your loan information in the top left section. For instance, in cell A1, enter “annual interest rate.” Then, in the adjacent cell, B1, input the annual interest rate as a percentage. Proceed to A2 for the loan duration in years, and input the corresponding value in column B. Repeat this process for payment per year in A3 and loan principal in A4.

Establish the columns for your amortization schedule.

Leave a blank line beneath your loan information. Across the spreadsheet, in row 6, enter the following column headings from columns A to E:

  • Payment number.
  • Payment amount.
  • Principal payment.
  • Interest payment.
  • Loan balance.

Complete the first month’s amortization details

Directly below the column headers, start filling in the loan details. In the payment number column, indicate “1.” In the payment amount column, input “=pmt(B1/B3,B2B3,B4),” which represents the payment function. For the principal payment column, enter “=ppmt(B1/B3, A7, B2B3, B4),” representing the principal payment function that calculates the monthly reduction of the principal amount. In the interest payment column, use “=ipmt(B1/B3,A7,B2*B3,B4),” denoting the interest payment function. Finally, in the loan balance column, input “=(B4+C7).”

  • Cell A7 should display “1” as the payment number.
  • Cell C7 should display the payment amount.

Complete the remaining entries in the amortization schedule

Select the range from cell A7 to E7, and drag the calculations down to the last payment. By the end of the schedule, the loan balance in column E should be $0. Remember to calculate the number of payments by multiplying the annual payments by the loan duration in years.

  • If the loan payment numbers do not update automatically in the amortization schedule, type “=(A7+1)” in cell A8 (for payment 2) and drag it down to the end of the schedule. This will ensure the remaining numbers are updated accordingly.


Image Source: UX Planet
Image Source: UX Planet

How would you define a fixed-rate mortgage?

A fixed-rate mortgage refers to a type of housing loan where the interest rate remains unchanged throughout the entire loan term. This implies that your monthly payment, consisting of principal and interest, remains constant. However, as the loan progresses, the proportion of your payment allocated to principal and interest varies due to amortization. Over time, a larger portion goes towards reducing the principal amount owed while the interest portion decreases.

How can you describe an interest-only mortgage?

An interest-only mortgage is a home loan that allows you to pay solely toward the interest for an initial period, typically a few years. Subsequently, you must make payments towards both the principal and interest, resulting in significantly higher monthly payments. Although it is possible to make principal payments during the interest-only phase, it is not obligatory.

How can a mortgage payment be calculated?

To calculate your mortgage payment, you can utilize the following formula:

M = P [ i(1 + i)^n ] / [ (1 + i)^n – 1]

This equation considers the total loan amount, monthly interest rate, and the loan term duration. By applying this formula, you can determine a fixed monthly mortgage payment.

What components are included in a mortgage payment?

A standard mortgage payment consists of repaying the loan amount and the interest charged by the lending institution. It is possible to incorporate taxes and insurance into your monthly mortgage payment, but these elements are often calculated separately.

How do I determine the affordability of a mortgage?

The affordability of a mortgage hinges on your monthly income and other financial obligations. Consider factors such as taxes, HOA fees, insurance, utilities, home maintenance costs, and even food expenses to establish an average monthly budget. Your mortgage should allow you to comfortably cover all these expenses and maintain financial stability in the long run.

What does an amortization schedule entail?

An amortization schedule provides a detailed breakdown of your monthly mortgage payments over time. It outlines the portion of each payment allocated towards reducing the principal loan amount, as well as the interest paid to the bank. By examining the amortization schedule, you can track your progress in paying off your mortgage and estimate the remaining duration.

What role do points play in mortgage calculations?

In mortgage calculations, points enable you to lower the interest rate by paying a certain amount upfront to the lender. Opting for more points entails a higher upfront payment but leads to lower monthly interest charges.


Gone are the days when you had to go to a mortgage lender and ask them to calculate the values for you and trust their calculation. Now, the formula for calculating mortgage payments is available on the Internet. All you need to do is keep all the figures handy and put them in the formula.

Moreover, if calculating by hand seems tricky, you can get help from the calculators available online. Just enter the numbers there, and the algorithm will run them for you to estimate what you should expect.

John Otero

John Otero

John Otero is an industry practitioner with more than 15 years of experience in the insurance industry. He has held various senior management roles both in the insurance companies and insurance brokers during this span of time. He began his insurance career in 2004 as an office assistant at an agency in her hometown of Duluth, MN. He got licensed as a producer while working at that agency and progressed to serve as an office manager. Working in the agency is how he fell in love with the industry. He saw firsthand the good that insurance consumers experienced by having the proper protection. John has diverse experience in corporate & consumer insurance services, across a range of vocations. His specialties include Major Corporate risk management and insurance programs, and Financial Lines He has been instrumental in making his firm as one of the leading organizations in the country in generating sustainable rapid growth of the company while maintaining service excellence to clients.

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