How to Calculate Mortgage Payments

How to Calculate Mortgage Payments

Calculating your monthly mortgage payments is a key part of determining how much home you can afford. Being aware of your payments will help you when budgeting and making financial decisions. This guide will walk you through the steps of calculating your mortgage payments.

Instructions

• Figure out the mortgage amount. Determine the total amount you’ll be borrowing for the mortgage. This is not just the purchase price of the home, but includes additional fees and the down payment to make up the total loan amount.
• Calculate the interest rate. Depending on the lender, this may be an annual interest rate or an annual percentage yield. Be sure to calculate the rate as it pertains to the term of your loan.
• Determine the length of the loan. This is usually in the form of a term, such as a 15-year or a 30-year loan, and will affect the payments and total interest paid.
• Calculate any additional loan costs. Depending on your loan, there may be closing costs and additional fees which must be factored into your total loan amount.
• Divide the interest rate by the number of payments per year. For example, if you have an annual interest rate of 10 percent and you make two payments per year, divide 10 by two.
• Add one to the result from Step 5. For example, if your result from Step 5 was 0.05, adding one to it gives you a result of 1.05.
• Raise the result from Step 6 to the nth power, where n is the number of payments you make per year. This gives you the formula for calculating the principal plus interest portion of your loan.
• Multiply the result from Step 7 by the loan amount. This number represents the principal and interest portion of your payments.
• Divide the principal and interest portion of your payment from Step 8 by the result from Step 7. This is your actual loan payment.
• Add the other costs of the loan to the payment. These may include mortgage insurance, taxes, and other fees.