Think of a mortgage as renting money. The bank gives you a large sum today, and you pay it back in small monthly pieces, plus a "rental fee" called interest.
The Math: We use a standard fixed-rate formula called Amortization. It ensures that every month you pay the exact same amount, even though the ratio of interest vs. principal changes over time.
Monthly Payment = P [ i(1 + i)^n ] / [ (1 + i)^n – 1]
- P (Principal): The actual money you borrowed (Home Price - Down Payment).
- i (Interest): Your annual rate divided by 12 months.
- n (Number of payments): Total months (Years × 12).
Interesting Fact: In the beginning, most of your monthly payment goes toward interest. As the balance drops, you pay less interest, and more of your money starts going toward actually owning the home (Principal).
