Do You Want To Know How To Manually Calculate A Mortgage?

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We hope your spirits are still up during this trying time – and certainly making the most out of staying at home and getting to know the contents inside those four walls better than you ever have! We believe this phase is a good time to clean up and fix anything you are able to and keep the value of your home as intact as possible!

This week, we want to know which one of you enjoys maths! And the kind of complicated type – but it helps if you’re an accountant or a numbers person 🙂

Before you jump in to the ‘largest’ purchase of your life – you need to know that you can afford the monthly mortgage payment. You could calculate the payment using a quick online calculator, but if you want to see how all of the variables work together, you can do it by hand using the mortgage monthly payment formula. You have the extra free time now!

The formula for calculating your mortgage monthly payment requires using exponents, so unless you can do those in your head, you’ll need a calculator to help. When it comes to budgeting for your new home, remember that the mortgage payment is only one cost. You’ll also need to budget for additional expenses like property taxes, homeowner’s insurance, homeowner’s association fees and home maintenance.

The formula for calculating a monthly mortgage payment incorporates the amount you are borrowing, your assigned interest rate, and the length of your mortgage repayment plan.

What can affect mortgage monthly payments?

The amount of a mortgage monthly payment is affected by three factors:

1) how much you borrow

2) your mortgage interest rate

3) the length of your mortgage.

The more you borrow, the higher your monthly payment. Similarly, the higher the interest rate, the larger each monthly payment will be. If the mortgage rate changes during the life of the mortgage, such as with an adjustable rate mortgage, you’ll have to recalculate the monthly payments at that time. Finally, the longer the term of your mortgage, the lower your monthly payment. However, with a longer term, you will pay more interest over the life of the mortgage.

Calculating your mortgage payment

Are you ready to crunch the numbers? To figure your mortgage payment, start by:

converting your annual interest rate to a monthly interest rate by dividing by 12.
add 1 to the monthly rate.
multiply the number of years in the term of the mortgage by 12 to calculate the number of monthly payments you’ll make. F
fourth, raise the result of 1 plus the monthly rate to the negative power of the number of monthly payments you’ll make.
Fifth, subtract that result from 1.
Sixth, divide the monthly rate by the result.
Last, multiple the result by the amount you borrowed.

For example, say you borrowed $265,000 on a 15-year mortgage at 4.32 percent. Start by dividing 0.0432 by 12 to find that the monthly rate equals 0.0036. Next, add 1 to 0.0036 to get 1.0036. Third, multiply 15 years by 12 payments per year to find that your loan consists of 180 monthly payments. Fourth, raise 1.0036 to the negative 180^th power to get 0.5237. Fifth, subtract 0.5237 from 1 to get 0.4763. Sixth, divide 0.0036 by 0.4763 to get 0.00755826. Finally, multiply 0.00755826 by $265,000 to find your monthly payment will be $2,002.93.

If you must pay monthly mortgage insurance or must pay into an escrow account for taxes and hazard insurance, add these monthly costs to your mortgage payment to figure your total monthly payment.

That wasn’t so bad, right? Numbers can be confusing but we think the steps are reasonable!

A special thanks to finance.zacks.com