Your mortgage payments are likely to be your largest regular bill, so it’s important to know how much you’ll pay. Calculating your mortgage payments helps you understand what you can afford to borrow and create a manageable household budget. These simple steps can teach you how to calculate mortgage payment interest and principal payment.
1. Determine Your Mortgage Principal
The mortgage principal is the amount you’re borrowing from the bank. For example, imagine you want to buy a $500,000 home. If you have saved $100,000 as a down payment, your mortgage principal is the remaining $400,000.
2. Calculate the Monthly Interest Rate
Lenders usually advertise an annual interest rate. If you want to calculate monthly mortgage payments, you’ll need to know the monthly interest rate. Simply divide the annual interest rate by 12, the number of months in one year. Divide the percentage amount by 100 to convert it into a decimal for easy calculations. For example, if the annual interest rate is 6%, the monthly interest rate is 0.5% (0.06 / 12 = 0.005).
3. Determine the Number of Payments
Calculate the number of payments you’ll make by multiplying the mortgage’s term by 12 — again, the number of months in a year. Say you decided on a 30-year mortgage. You would make 360 mortgage payments (30 x 12 = 360).
4. Consider Additional Costs
Additional costs can increase your monthly mortgage payments. For example, monthly mortgage payments often include property taxes and homeowners insurance. If your down payment is less than 20% of the property’s purchase price, you’ll also need private mortgage insurance. You can expect to pay between 0.2% and 2% of your mortgage principal in private mortgage insurance. You’ll find the exact percentage in your loan estimate. Most lenders add the cost of private mortgage premiums to their customers’ monthly mortgage payments.
5. Calculate Your Monthly Mortgage Payments
Once you have all the information about your mortgage, you are ready to calculate your monthly mortgage payments. Use the formula M = P [ i(1 + i)^n ] / [ (1 + i)^n – 1], where P is the principal loan amount, i is the monthly interest rate, and n is the number of payments. Using the example scenario above:
M = $400,000[ 0.005(1 + 0.005)^360 ] / [ (1 + 0.005)^360 – 1]
M = $400,000[ 0.005(1.005)^360 ] / [ (1.005)^360 – 1]
M = $400,000[ 0.005(6.02258) ] / (5.02257)
M = $400,000 x 0.005996
M = $2,398.40
The person in our example had a large enough down payment to avoid paying private mortgage insurance. As we rounded our numbers, the amount of the mortgage payment isn’t exact, but it’s close enough for budgeting. This is also the mortgage amount without property tax and homeowners insurance. Because these are fixed amounts, you can easily add them at the end of your calculations.
Learn how to calculate your mortgage payment to better manage your finances and plan for your future homeownership. If you’re considering getting a home loan, speak to the Tuttle Group first. Our experienced money experts can help manage your mortgage and other long-term financial goals. Complete our online form to schedule a meeting and discover how we can help you achieve your financial dreams.
