The Standard Amortization Formula
Monthly principal & interest payment M is calculated using:
M = P × [ r(1 + r)ⁿ ] ÷ [ (1 + r)ⁿ − 1 ]
- P: Principal loan balance (e.g. $300,000)
- r: Monthly interest rate (Annual rate ÷ 12)
- n: Total number of monthly payments (Years × 12)
15-Year vs 30-Year Fixed Mortgage Example ($300,000 at 6%)
- 30-Year Fixed: Monthly payment = $1,798.65 | Total interest paid = $347,514
- 15-Year Fixed: Monthly payment = $2,531.54 | Total interest paid = $155,677