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How Do I Figure Out My Mortgage Calculation?

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Looking for a new home to buy can be exciting and stressful at the same time. Among the full process of packing up, finding a mover, and searching for a home, there’s also some math you’ll need to do upfront to understand your mortgage calculation.

In this day and age, it’s important to find a home you both love and can afford. A mortgage allows you to own a home, so long as you’re able to pay back the mortgage after a period of time. As you’re looking, you must be realistic with what you can afford month to month and in the long term.

To make the process a little easier, it helps to calculate your budget for monthly payments ahead of time. Start by doing some math to calculate loan payments — you can do this by hand or by using online calculators.

In this article, we’ll walk you through how to calculate monthly loan payments for your mortgage so you can feel confident in your long-term budget.

How to Calculate Your Monthly Mortgage Payment by Hand

Calculating your mortgage by hand is beneficial because you’ll learn how different factors work together to affect your monthly rate. These factors include the total amount you’re borrowing from a bank, the interest rate for the loan, and the amount of time you have to pay back your mortgage in full.

For your mortgage calc, you’ll use the following equation:

M = P [ i(1 + i)^n ] / [ (1 + i)^n – 1]. 

Here’s a breakdown of each of the variables:

  • M = Total monthly payment
  • P = The total amount of your loan
  • I = Your interest rate, as a monthly percentage
  • N = The total amount of months in your timeline for paying off your mortgage

For an easy example, let’s say that the total amount of your loan is $80,000 (P), while your total interest rate is 5%, or .05 (i). Remember that 5% is your annual interest rate, so you need to divide it by 12. Monthly, your interest rate is .05/12, which equals .00417.

The bank has given you ten years to pay off your loan, or 120 months (n). Using these numbers, your equation will be:

M = 80,000 [.00417(1+.00417)^120]/[(1+.00417)^120-1]

To solve, calculate (1+.00417)^120 first. Unless you can calculate exponents in your head, you’ll need the help of a calculator for this portion. We calculated 1.64767. Plugging this back into the equation:

M = 80,000 [.00417(1.64767)]/[.64767].

Next, solve all the math within the brackets. This simplifies the equation down to just 80,000 X .0106, which equals 848.

Now you know that you’ll be spending about $848 per month for 10 years to pay off your mortgage fully. Keep in mind that we rounded all numbers five spaces past the decimal point, so this amount isn’t exact to the amount of change.

The equation we used is a simple method that only uses your loan amount, interest rate, and timeline. You may also need to incorporate other variables like a down payment, homeowner’s insurance, or property tax, which are all costs that will factor into your total monthly payment.

Consider Other Monthly Costs

You can incorporate additional variable into this calculation by tweaking the equation slightly. If you’re paying an up-front down payment, this will affect the P in your equation — or the total amount of your loan.

Perhaps you’re paying a 20% down payment in the very first month of your payment period. Using the same numbers as above, that’s $16,000. Your equation will change to:

M= 80,000-16,000 [.00417(1+.00417)^119]/[(1+.00417)^119-1].

We simply adjusted P to account for the $16,000 that would be taken off after the down payment is made, and we also adjusted N (the total amount of months), so that your monthly rate would begin after the initial down payment.

Using Online Mortgage Calculators

If you don’t want to calculate your mortgage by hand, you can find a free payment calculator to use online – there are many to choose from. These work by asking for a certain amount of variables and instantly providing you with a fixed monthly cost. They’re usually easy to use and very convenient since you don’t have to do any math by hand.

Keep in mind that an online mortgage calculator is only as helpful as the inputs you provide. You won’t be able to go back and check the math, so if you make a mistake with the numbers you provide, it could be hard to catch an incorrect output.

Furthermore, it could be hard to find a customizable mortgage calc that uses all the variables you’d like to include. You may have a unique scenario that the calculator mortgage doesn’t take into account.

Some expenses that most mortgage calculators don’t take into account include your monthly home maintenance costs, such as pest control and security, and your monthly utilities (water, gas, electric, internet, etc.). You may also have a monthly HOA fee, property taxes, and homeowner’s insurance. These are all monthly costs that are separate from your mortgage but still need to be considered well ahead of time, so you understand the full scope of your budget.

Before you choose whether to calculate by hand or find an online mortgage calc, you’ll need to consider these additional variables and which method will give you the best understanding of your monthly costs. It may be most helpful to calculate your mortgage online while incorporating some additional variables by hand.

Frequently Asked Questions

How do you calculate a mortgage payment?

You can calculate your mortgage payment by using this equation:

 M = P [ i(1 + i)^n ] / [ (1 + i)^n – 1]

The equation takes into account your total loan payment, monthly interest rate, and the length of time you have to pay off your loan. It gives you a fixed monthly mortgage rate.

What is included in my mortgage payment?

A standard mortgage payment includes paying back your loan and any interest that the bank requires for giving you the loan. You may also decide to include taxes and insurance with your monthly mortgage rate, but this may be calculated separately.

What mortgage can I afford?

The mortgage you can afford will depend on your monthly income and any other monthly payments you’ll have. Take into consideration your taxes, HOA fees, insurance, utilities, home maintenance, and even food costs to determine an average monthly budget. Your mortgage should allow you to afford all other costs and to maintain a financially secure future.

What is an amortization schedule?  

An amortization schedule shows you a full breakdown of your mortgage payments month by month. It includes your principal amount, which is the amount towards paying off the loan, as well as the interest amount that goes to the bank. The amortization schedule can help you see milestones in paying off your mortgage and how long it will take.

What are points in a mortgage calculation? 

Mortgage points allow you to lower your interest rate by paying some interest to the bank upfront. The more points you choose, the more you’ll pay upfront, but the less interest you’ll pay each month.

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