How much is the monthly payment on a mortgage?

How a mortgage payment is calculated

payment = amount × r ÷ (1 − (1 + r)⁻ⁿ)r = annual rate ÷ 12 ÷ 100n = number of instalments

A mortgage is repaid in equal monthly annuities. The bank sets the payment so that the debt is exactly zero after the last one — which is why the number of instalments appears as an exponent. The monthly rate is the annual rate divided by twelve, so 5% a year is roughly 0.4167% a month.

For 120,000 KM over 300 instalments that gives a payment of 701.51 KM. It is the only number most people look at, and on its own it says nothing about the total cost: the instalments add up to 210,452.41 KM, so 90,452.41 KM is interest — over three quarters of the amount borrowed.

A 25-year term is common precisely because it brings the payment down to something a household budget can carry. Every extra year is also another year of interest on the outstanding debt, so it is worth comparing a few scenarios before signing rather than only checking whether the payment fits the salary.

What half a percentage point costs

Over a term this long the interest rate is the most expensive thing to negotiate. The difference between 5% and 5.5% on this loan is 35.40 KM a month — trivial next to the payment itself. Over 25 years it is 10,619.08 KM more interest.

A full percentage point, from 5% to 6%, raises the payment by 71.65 KM and the total interest by 21,496.09 KM. That is why negotiating the rate, or refinancing later on a better offer, is worth far more on a mortgage than on a consumer loan: the same difference in rate applies to a larger amount over a longer period.

The same 120,000 KM principal and the same 25-year term at four different nominal rates:

Interest at the start, principal at the end

Although the payment is identical for all 300 months, its composition changes every month. Interest is always charged on the outstanding debt, and that is largest at the beginning.

In the first instalment of 701.51 KM, interest is 500.00 KM and principal only 201.51 KM. Around the middle of the term the two even out — in the 150th instalment interest is 327.09 KM and principal 374.42 KM. In the last instalment the ratio is completely reversed: 2.91 KM of interest and 698.60 KM of principal.

The practical consequence is that the debt falls far more slowly in the early years than people expect: half of it is only repaid by the 195th instalment, after 16 years and three months. That is why an extra payment early on has the largest effect — it shortens exactly the period in which interest is most expensive.

Calculate the saving from an extra payment →

How much debt is left after 5, 10, 15 and 20 years

After five full years and 42,090.48 KM in payments, the debt has fallen from 120,000.00 to 106,296.23 KM: 13,703.77 KM of principal has been repaid while 28,386.71 KM went to interest. In the first five years, twice as much money goes to interest as to the debt itself.

You only pass half the principal in the seventeenth year — after 15 years 53,860.87 KM is repaid, or 44.9% of the loan. In the final five years the ratio is completely reversed: 37,173.41 KM of principal is repaid with just 4,917.08 KM of interest.

The whole course of the same 120,000 KM loan at 5% over 25 years, cumulatively — how much principal has been repaid by that point, how much went to interest and how much debt remains:

A term of 20, 25 or 30 years

The term is usually the one item a buyer can change without negotiating with the bank, and it works in two directions at once: a longer term lowers the payment but extends the period over which interest accrues.

The same 120,000 KM loan at 5%: over 20 years the payment is 791.95 KM, over 25 years 701.51 KM and over 30 years 644.19 KM. Five years beyond twenty lowers the payment by 90.44 KM but raises total interest by 20,385.16 KM. The next five years lower it by only 57.32 KM more while adding another 21,454.53 KM of interest — each further stretch of the term buys less relief for more money.

What share of the salary is reasonable

Banks assess creditworthiness by their own rules and count every debt in the household, so there is no universal limit. As a rough orientation, people use the payment's share of monthly net income.

A payment of 701.51 KM is about 58% of a net salary of 1,200 KM, about 47% of 1,500 KM and about 35% of 2,000 KM. The salary figures here only serve to work out the share and are not a claim about any average.

If you are working from the gross amount in an employment contract, convert it to net first — the difference is large and easily leads to overestimating your own borrowing capacity.

Gross and net salary in BiH — how it is calculated →

What the payment calculation does not cover

The annuity covers only principal and interest at the nominal interest rate. The real annual cost is shown by the effective interest rate, which also includes the processing fee, the property valuation, notary costs, registering the mortgage and any insurance policies the bank requires. Two offers with the same nominal rate can have noticeably different effective rates.

If the rate is variable it is tied to a reference rate and the payment changes when that moves. In that case a single scenario is not enough — calculate the payment at a rate one or two percentage points higher and check whether the budget still carries it.

Every amount in this guide is illustrative and calculated at a nominal rate of 5%, chosen as an example. The terms of an actual bank offer are what count.