How the monthly payment is worked out
A fixed-rate mortgage uses the standard annuity formula. The lender takes the loan amount, the monthly interest rate and the number of months, and finds the one payment that clears the balance exactly on the final month:
M = P × r / (1 − (1 + r)−n)
Here P is the amount borrowed (price minus deposit), r is the annual rate divided by twelve, and n is the term in months. The payment never changes, but its make-up does: in the early years most of it is interest, and only later does it start eating into the balance.
What the escrow line covers
Most lenders collect property tax and building insurance alongside the loan payment and hold them in escrow. That is why the figure on your bank statement is larger than the principal-and-interest number quoted in an advert. This calculator adds tax, insurance and any HOA or service charge so the monthly total matches what actually leaves your account.
Why the total interest number matters more than the rate
A 30-year loan at 6.5% on $280,000 costs roughly $357,000 in interest across the term — more than the house. Cutting the term to 20 years raises the monthly payment but removes a large share of that interest, because interest is charged on the outstanding balance every month it remains outstanding. Compare the total interest row, not just the monthly figure, when you weigh up two offers. Our guide to comparing mortgage offers walks through the traps in more detail, and the loan calculator handles any other fixed-rate borrowing.
What this calculator does not include
Private mortgage insurance on deposits under 20%, arrangement and valuation fees, early repayment charges, and any rate change on a variable or adjustable deal. Treat the result as a close estimate and let your lender's illustration be the final word.