How US Mortgage Payments Are Calculated

Summary

A US mortgage calculator takes the loan amount, interest rate, and term to compute a fixed monthly payment. The 30-year fixed-rate mortgage is the dominant product in the US, with the average rate at 5.98% as of early 2026 (Freddie Mac PMMS). Borrowers who put down less than 20% must pay Private Mortgage Insurance (PMI) until they reach 20% equity.

How it works

The US mortgage market is structured around three main loan types:

• Conventional loans require a minimum 3-5% down payment. PMI is mandatory below 20% down and typically adds 0.5-1.5% of the loan amount per year. Loans are often backed by Fannie Mae or Freddie Mac.
• FHA loans (Federal Housing Administration) allow down payments as low as 3.5% with lower credit score requirements (580+). They carry an upfront mortgage insurance premium (1.75% of loan) plus an annual premium (0.45-1.05%).
• VA loans (Veterans Affairs) offer 0% down with no PMI for eligible veterans and active-duty service members.

The standard US term is 30 years, though 15-year and 20-year terms are also common. The 30-year fixed rate protects borrowers from interest rate changes for the life of the loan, unlike the UK market where fixes are typically 2-5 years.

Property taxes (averaging 1.1% of home value nationally) and homeowners insurance are usually collected monthly via escrow but are not part of the loan payment itself.

Worked example

$396,800 home, 20% down, 5.98% fixed rate, 30 years:

1. Loan amount: $396,800 x 0.80 = $317,440
2. Monthly rate: 5.98% / 12 = 0.4983%
3. Total payments: 30 x 12 = 360 months
4. Compound factor: (1 + 0.004983)^360 = 5.9676
5. Monthly payment: $317,440 x (0.004983 x 5.9676) / (5.9676 - 1) = $1,898.85
6. Total repayable: $1,898.85 x 360 = $683,586
7. Total interest: $683,586 - $317,440 = $366,146

The monthly payment is $1,898.85, with total interest of $366,146 over 30 years.

Key differences from other markets

• 30-year fixed rates are unique to the US. Most other markets (UK, Australia, Canada) offer variable rates or short-term fixes (2-5 years), making long-term budgeting less predictable.
• PMI requirement below 20% equity is a US-specific mechanism. In the UK, higher LTV simply means a higher interest rate; there is no separate insurance premium.