Mortgage Payment Calculator

How to calculate payments on mortgage?

Apart from using our specialized mortgage payment calculator you can do the calculation by yourself on a paper. You can simply apply the formula explained here that requires you know the principal amount you intent to borrow together with the interest rate and the loan term in years:

 MP = PA * ((i/1200)*(1+i/1200)ⁿ)/((1+i/1200)ⁿ-1)

Where:

MP is the value paid on a monthly basis;

PA is the mortgage amount borrowed;

i is the annual interest rate;

n is the term of the loan expressed in months.

For example let’s assume someone wants to borrow $200,000 for a fixed term of 20 years at a fixed interest rate of 3.5%. What will be the value paid month by month?

Solution:

Payment value on a monthly basis = 200000*(((3.5/1200)*((1+3.5/1200)^240))/(((1+3.5/1200)^240)-1)) = $1,159.92

Total paid = $1,159.92 * 20 * 12 = $278,380.66

Total interest paid = $278,380.66 - $200,000 = $78,380.66

Total number of monthly payments = 20 * 12 = 240

Please note that the interest was divided by 1200 in order to express it as a monthly rate in decimal format.

How does this mortgage payment calculator work?

Apart from a summary payment details this tool was designed to display as well a yearly amortization schedule. The formulas behind it are the ones explained previously while the data it takes into account of is the same as in the calculation example, with a single exception that refers to first payment date which is used to determine the pay off date.

The calculation results that this tool displays are:

• Total number of monthly payments;
• Monthly payment value;
• Total payments (cost of loan);
• Total interest paid;
• Estimated pay-off date;
• Detailed payments situation per year containing the intermediate principal, interest and balance left to pay.

What to take account of when deciding your mortgage plan?

Choosing a proper mortgage plan is critical as the payments you are about to make on a monthly basis should not be a burden for your family; otherwise you will be at risk of losing your home.  Just to avoid this situation you need to have a clear image of how much you can afford to pay. That means both parts (you and your lender) should choose the right payment schedule and the right loan amount according to your capabilities. From this perspective there are few things you should take into account when deciding your plan:

• Don’t be that optimistic that you will manage to pay your loan in a too short number of years. You should have a safer approach in regard of the desired repayment schedule. What happens if for instance your will lose your job and your savings will not be enough to keep your payment schedule for the next 3 months?
• Don’t take into account unstable income sources when deciding your monthly payment level because a basic financial rule says that debts to be paid in a long period of time should be financed by stable income sources;
• Don’t underestimate your monthly expenses otherwise you may be at risk of having a deficit in your budget;
• Try not to forget about future expenses that may impact your financial stability.

Apart from the financial analysis the lender will certainly make, below is a key list of questions you should answer before contracting a new mortgage. These questions focus on the personal choices you have to make before deciding how much house you can afford and then what mortgage repayment schedule you should choose:

Questions about income:

• Are you relying on two incomes just to pay the bills, or on one income?
• Is your job stable? How stable is? Are there chances to lose your job in the near future?
• Can you find in few weeks another job that pays the same, or better, wages if you should lose your current job?

Questions about expenses:

• Will you have kids in college someday? If yes, how many?
• Do you have plans to buy a new car? If yes, what is the car value you plan to buy?
• Does your family enjoy a yearly vacation?
• Does your family have other projects that will require other payments, even occasional?

Questions about lifestyle:

• Are you willing to change your lifestyle to get the house you want or the house you think you can afford before taking the mortgage?
• Are you willing to renounce to some of your hobbies and plans?

Questions about personality:

• Can you sleep soundly at night knowing that you owe $5,000 per month for the next 25 years?
• Does the mortgage cause any stress to you or to your wife that might affect your family?
• Can you handle job finding tasks knowing that you owe $5,000 per month?

Strategies on mortgage payment

The strategies on mortgage payment may be classified by different perspectives, but below we are referring on two of them in order to highlight the importance of setting up the right schedule. As it can easily be observed from the following lines, the correct strategy on paying off is a tough decision to make so you are advised to make at least few simulations with a mortgage payment calculator.

• By taking account of the moment you decide to pay off your mortgage there are 2 types of strategies:

- Paying mortgage earlier which has the advantage that you will pay less interest but you have to have the financial resources for a one time or higher regular payments.

- Paying off by the negotiated schedule which has the advantage that you are in control and no extra effort is requested from you.

• By taking account of your financial capabilities the strategies can be clasified in 3 types:

- Paying mortgage in a negotiated term that proves to be a burden for your family which is a risky strategy;

- Paying off in a negotiated term that proves to be optimal for your budget which is a correct strategy;

- Repayment in a negotiated term that proves to be too long as your capacity to pay it off is higher than expected. In this case it is unprofitable for you to follow the schedule because this way you will pay an interest higher than you would pay by renegotiating your amortization schedule.