How to Calculate Your Mortgage Payment: the Only Formula You’ll Need

If you plan to obtain a mortgage, one of the most important features to you is likely the monthly payment amount you will need to pay.  Keeping that in mind, realize that to calculate this specific type of loan payment, you will need to have information available to you based on the loan you qualify for. 


The interest you pay on a home loan is perhaps the most important part of the process, since this is the fee of borrowing the money.  However, other factors do play a role in the likely monthly payment you will make.


The process of calculating a mortgage payment is not a simple one.  For an easier process, turn to an online, free calculator that will do most of the work for you.  Otherwise, follow these steps to help you through the process.


Simple Steps


* The formula for calculating the payment is the following: M = P[i(1+i)^n]/[(1+i)^n -1].  In this equation, the monthly payment is M, the interest rate is I and the principle owed is P.  The n is the number of payments you will make.


* Based on the information from your lender, determine what M and P are in monetary figures.


* You will then need to change the interest rate you are paying into a decimal rather than a percentage.  Then, you will need to divide that by 12, since you will want a monthly payment rather than an annual payment, which most interest rates are at when quoted to you.


* Consider the loan term, or the number of payments you will make over the lifetime of paying the mortgage back.


* Place all of these elements into the formula listed above and do the calculations provided to you.  Work through the process systematically to get the accurate monthly payment you will pay.


Working Through the Process


Why would you need to use this formula?  If you plan to obtain a mortgage, it is a good idea always to choose the lender offering the lowest interest rate, but other factors, such as the interest rate and term, also play a role in how effective and low cost the loan is to you.   Therefore, when you obtain these loan quotes, it is a good idea to work through this process to determine which the best loan for your specific needs is, based on each aspect of the formula.


As you consider purchasing a home, know that a mortgage will always be expensive.  However, when you take steps to determine which lender can offer the lowest interest rate, and determine what your monthly mortgage payment will be, you will save money overall.


There are calculators available online that could help you to calculate these costs without having to do the math, but it is a good idea for anyone considering the purchase of a home to understand the actual elements that make up the monthly payment. 


Try this formula to see just how expensive or inexpensive the loan you want really is.  Change up the terms, too, to see how you can reduce that payment.

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