Mortgage Calculator

A fixed-rate mortgage is structured so every monthly payment is identical for the entire term, even though the balance owed and the interest charged on it both change every month — this is what the annuity formula solves for. It works backward from a simple requirement: find the one constant payment amount that, applied every month at the given rate, exactly reduces the outstanding balance to zero on the final scheduled payment, no more and no less. That is a fundamentally different calculation from simply dividing the loan amount by the number of payments, which would ignore interest entirely and leave the lender uncompensated for the time value of the money they lent — the formula's exponential terms exist specifically to account for interest compounding on the shrinking balance month over month.

Interest is charged each month on whatever balance remains outstanding, and at the start of a 30-year loan that balance is at its largest — which means the interest portion of the fixed monthly payment is also at its largest, leaving comparatively little left over to actually reduce the principal. On a typical 30-year loan around 6.5%, it is common for roughly 80% of the very first payment to go to interest and only 20% to reduce the debt, and that ratio shifts gradually every month as the balance falls, eventually crossing over so that later payments are mostly principal. This is not a sign anything is wrong or that the loan is unusually unfavourable — it is the mathematically necessary consequence of charging interest on a large balance that only shrinks slowly at first.

Private mortgage insurance exists to protect the lender specifically, not the borrower, against the higher default risk associated with a smaller down payment — which is why it is typically required whenever the deposit is under 20% of the property's value, the threshold at which lenders historically judged the borrower's equity cushion large enough to reduce that risk to an acceptable level on its own. It is not a fee that lasts the life of the loan by design: once the borrower's equity reaches that same 20% threshold, either through payments or property appreciation, PMI can typically be cancelled, which is why this calculator's assumption that it runs for the entire term should be read as a conservative ceiling on the total cost rather than a literal prediction of what will actually be paid.

The monthly payment figure this tool produces is the recurring cost of servicing the loan itself, and it is deliberately not the full cost of buying a home — closing costs, legal and survey fees, stamp duty or transfer taxes, moving costs, and ongoing maintenance are all real expenses that a monthly-payment calculator has no natural place to include, since they are one-time or irregular rather than part of a fixed monthly figure. The calculation also assumes a single fixed interest rate held constant for the entire term, which is accurate for a fixed-rate mortgage but not for an adjustable-rate one, where the rate — and therefore the payment — can change at scheduled intervals in ways this tool does not model.