A mortgage payment looks like one number on a statement, but it is built from at least two parts and often four. Principal and interest come out of a formula with only three inputs: how much you borrow, the interest rate, and how many months you have to repay it. Property taxes and homeowners insurance are stacked on top. Once you understand those pieces you can check any lender’s quote yourself, and you can see exactly why a 30-year rate in the mid-6s, where the market has spent 2026, produces the payments it does.

First, the rate you use is not the APR

This trips up a lot of explainers, including the 2014 version of this article. The interest rate (the note rate) is the cost of borrowing the principal, and it is the number that goes into the payment formula. The APR reflects the interest rate plus points, broker fees and other charges, so it is usually higher than the rate. The APR exists to compare offers, not to compute your payment. Two lenders quoting the same 6.5% rate can show different APRs because one charges more in fees; their monthly payments are identical. Our mortgage-basics guide has a fuller explanation of interest rate versus APR.

The formula

For a fixed-rate mortgage, the monthly principal-and-interest payment is:

M = P [ r(1 + r)^n ] / [ (1 + r)^n - 1 ]

  • P is the loan amount, the principal.
  • r is the monthly interest rate: the annual note rate divided by 12.
  • n is the number of monthly payments: 360 for a 30-year loan, 180 for a 15-year loan.

The formula looks intimidating because it does two jobs at once. It charges interest on the outstanding balance every month, and it sizes the payment so that the balance reaches exactly zero on the last one. That second job is what makes the payment level even though the balance shrinks the whole time.

A 2026 worked example

Take a $400,000 30-year loan at 6.5%, a rate consistent with where 30-year mortgages have traded through 2026 (Freddie Mac’s weekly survey put the average at 6.71% in the first week of September 2026).

  • r = 0.065 ÷ 12 = 0.0054167
  • n = 360
  • (1 + r)^360 = 6.9918
  • M = $400,000 × 0.0054167 × 6.9918 ÷ 5.9918 = $2,528.27

Over 360 payments you hand the lender $910,177.95, of which $510,177.95 is interest. That last number is the one to sit with: at a mid-6s rate, the interest on a 30-year loan exceeds the amount you borrowed.

What the first payment actually does

The formula charges interest on the full balance in month one: $400,000 × 0.065 ÷ 12 = $2,166.67. Only the remaining $361.60 of that first $2,528.27 payment reduces the principal. The payment never changes, but each month the interest share shrinks a little and the principal share grows, because interest is being charged on a slightly smaller balance. That schedule is called amortization, and it is why equity builds slowly in the early years and fast in the late ones.

The term changes everything

Run the same $400,000 at the same 6.5% over 15 years (n = 180) and the payment jumps to $3,484.43, but total interest falls to $227,197.30. In practice 15-year loans are also priced below 30-year loans: the same early-September 2026 Freddie Mac survey showed 6.04% for the 15-year against 6.71% for the 30-year, which widens the gap further. Whether the higher payment is worth the interest saved is the whole subject of our 15-year versus 30-year comparison.

Taxes, insurance and the rest of PITI

Principal, interest, taxes and insurance are the four basic elements of a monthly mortgage payment, which is why lenders call the total PITI. If your loan has an escrow account (you may be required to have one, or may choose to), the servicer collects one-twelfth of your annual property tax bill and one-twelfth of your homeowners insurance premium with every payment and pays those bills when they come due. So the full payment is:

Total payment = principal and interest + annual property taxes ÷ 12 + annual insurance premium ÷ 12, plus mortgage insurance if you put less than 20% down on a conventional loan.

Two things follow. Taxes and insurance depend on the house and the town, not on the loan, so a $400,000 mortgage on two different properties can carry very different total payments, so there is no universal number to plug in. And the principal-and-interest part is fixed for the life of a fixed-rate loan, but the escrow part is not: when your tax assessment or insurance premium rises, your monthly payment rises with it, even though the loan itself has not changed. Your Loan Estimate, which the lender must deliver within three business days of your application, shows the estimated escrow amounts, so you do not have to guess.

What it costs to buy the typical home

Put the formula to work on a real 2026 price. The median existing home sold for about $429,300 in mid-2026. At 6.5% on a 30-year loan, principal and interest alone come to:

  • 20% down (loan of $343,440): $2,170.77 a month, with no mortgage insurance.
  • 5% down (loan of $407,835): $2,577.79 a month, plus mortgage insurance.
  • 3% down (loan of $416,421): $2,632.06 a month, plus mortgage insurance.

Taxes and insurance are on top of all three. That is the arithmetic behind the affordability squeeze.

Adjustable rates and interest-only loans

The formula above assumes the rate never changes. On an adjustable-rate mortgage the payment is recomputed at each reset using the new rate, the remaining balance and the remaining term; today’s standard ARMs are fixed for five, seven or ten years and then adjust every six months. An interest-only loan is the other exception: during the interest-only period you pay just the interest ($2,166.67 a month on our $400,000 example), the balance never shrinks, and when principal payments begin the payment steps up sharply.

Why the rate matters more than it looks

Because the rate compounds across 360 payments, small differences produce large ones. On a single morning in September 2026, posted 30-year rates across the lenders we track differed by 1.25 points, which on a $400,000 loan is roughly $325 a month. Before you plug a rate into the formula, make sure it is the best one you can get: compare current quotes on our mortgage rates page, and remember that the rate, not the APR, is what your payment is built on.