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Home Mortgage Preparation :: Calculate A Mortgage Payment
Calculate A Mortgage Payment: Formula to Calculate Your Mortgage and A Monthly Payment
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It's easy to calculate a mortgage payment, once you know how to do the math.
Before you begin to figure out how much you can expect to pay each month on your mortgage, gather together your finances, including how much you expect to pay in interest, your potential down payment, and the purchase price or principal amount of your home loan.
Once you have these figures, you'll be able to do the calculations for yourself. Here's how:
Start with the Principal
The principal (P in this formula) is the initial amount of your loan. For this example on how to calculate a mortgage payment, let's make the principal $400,000. So P=$400,000.
Get the Interest and the Term
Next up are the interest rate (I in this formula) and the term of the mortgage or the length (L in this formula). Let's say we're working with a 30-year mortgage and a 6.5% interest rate, so I=6.5 and L=30.
Because the interest on most mortgages is compounded monthly, you can start to calculate a mortgage payment by breaking out the interest into decimal form divided by the month.
So, if your annual interest rate is 6.5%, your monthly interest will be 0.0054%, let's make that C.
Since you'll be calculating the monthly interest rate, you'll also need the number of months. So, L=30 and Lx12=360, meaning the total number of months for your mortgage equals 360, let's make that T.
So, P = $400,000, C=0.0054% and T= 360.
Formula to Calculate a Mortgage Payment
To calculate a mortgage payment (M), you need to take C (0.0054%) and divide it by 1 – (1+C) ^-T.
Basically, start by adding 1+C, which gives you 1.0054% and then take that figure to the power of -T (or -360), which equals 0.14388. Finally, subtract that from the number 1, leaving you with 0.85612. Then, take the inverse of that number, which is 1.16806, multiply it by C (0.0054%) and that will give you 0.006307. Finally, to calculate the actually monthly payment, times that number by the principal.
So, $400,000 * 0.006307 = $2522.80 for a monthly mortgage payment.
Admittedly, there are a lot of online tools that will calculate a mortgage payment for you, but sometimes it's just more fun to do it yourself.
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Home-Mortgage-Preparation.com :: Calculate A Mortgage Payment