Mortgage Amortization Formula
The fixed monthly mortgage payment formula calculates Principal & Interest (P&I) owed each month over the loan term.
Standard Amortization Formula
M = P · [ r(1 + r)&supn; ] / [ (1 + r)&supn; - 1 ]
- M = Total monthly payment
- P = Principal loan balance (Home price minus down payment)
- r = Monthly interest rate (Annual interest rate divided by 12)
- n = Total number of monthly payments (Loan term years × 12)
Worked Example
For a $300,000 home loan at 6% annual interest over 30 years:
- P = $300,000
- r = 0.06 / 12 = 0.005
- n = 30 × 12 = 360 months
- M = 300,000 · [ 0.005(1.005)³&sup6;&sup0; ] / [ (1.005)³&sup6;&sup0; - 1 ] = $1,798.65 / month