Besides looking at the amount you’ll get to decide between mortgage loan offers, it’s also critical that you evaluate the repayment terms beforehand. Knowing how much you’ll be asked to pay comfortably will let you know what you can afford to get and what you can’t; hence, there is the need to know how to calculate a mortgage loan payment. In this article, we demonstrate mortgage payment calculation so that you know how much your mortgage payment will be for each mortgage loan offer.
To proceed, have the following information on hand:
The first step to finding out how much your mortgage loan payment will be is to determine the nature of the interest rate: is it fixed, or does it adjust throughout the loan term?
A key factor in understanding mortgages is that fixed-rate loan payments stay the same throughout the loan term, which makes budgeting easy. Although this loan type’s rates may be higher than those of variable-interest loans, homeowners are protected from market fluctuations, which keeps their payments predictable. There are many loan term options in the market for this type of loan. Still, typically, homeowners opt for the 15-year term to get a cheaper mortgage loan but with higher monthly installments, or a 30–year term with more comfortable payments but with higher interest payments due to the longer borrowing period.
So, how do you calculate a mortgage loan payment? The formula is:
Loan Payment = Loan Amount/ Discount Factor
Discount Factor (D) = {[(1 + i) ^n] – 1} / [i(1 + i)^n]
Where (i) is the periodic interest rate = Annual Rate/number of payments each year
(n) is the number of payments each year x the number of years
If this calculation is too complicated, turn to our mortgage loan calculator. With your complete mortgage loan information, it should be as easy as inputting these details to determine how much your payment will be for your fixed mortgage loan. Accurately fill in these details and click ‘Calculate’ to get your estimated monthly payment.
For adjustable-rate mortgages, you’re better off using a calculator to determine how much your payment will be for the mortgage loan. The most common adjustable-rate mortgage (ARM) is a fully amortizing loan, which means that your monthly payments go towards paying off the entire mortgage balance by the end of the loan term. The interest rate for this loan type is fixed at first, for 120, 84, 60 or 36 months, and then adjust every year for the remaining term. Therefore, you’ll be issued an initial interest rate, and after that, your monthly payments will adjust at the specified frequency.
Note that an amortizing loan also has an interest rate cap, above which the maximum rate will not exceed. So, include this cap in your calculations. Other details to enter into the calculator are the loan term in years, the starting interest rate, the mortgage amount, the months before the first interest rate adjustment, and the months between adjustments. The output of the calculations should show you the estimated total interest to pay over the life of the loan, total payments, initial monthly payment, and the maximum monthly payment. With this information, you can compare mortgage loan offers and pick the most affordable.
Critical in the home buying process is your need to assess if you can afford your mortgage payments. Learn how to calculate a mortgage loan payment so you can find out how much your monthly payment will be to avoid going over your budget when applying for a mortgage loan. For more information and resources to help with determining your monthly payments with each loan offer, visit our Mortgages page.
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