How to Calculate Your Payments on a Fixed Rate Mortgage
Most people have to borrow money in order to purchase their home. A fixed-rate mortgage locks in an interest rate for the life of the mortgage. To calculate the amount of your payments, you'll need to know the interest rate, the term of the loan and the amount you borrowed.
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Instructions
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1
Determine how much you need to borrow for your mortgage.
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2
Determine the term of your loan. Most mortgages range from 15 to 30 years. The longer you take to repay the loan, the lower your monthly payments will be, but the more you will pay in interest over the life of the loan.
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3
Determine the interest rate you will pay. If you've been approved for a mortgage, the lender will set the rate based on your credit score, income and several other factors. Lenders will usually offer lower rates for loans with shorter terms and to people with good credit. If you're shopping for a mortgage, lenders readily make their rates and terms available.
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4
Determine the periodic interest rate by dividing the annual interest rate by 12. For example, if the annual interest rate is 7.5 percent, the periodic interest rate would be 0.625 percent.
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5
Determine the number of payments that will be made over the life of the mortgage by multiplying the number of years by 12. For example, if you have a 30 year mortgage, you would make 360 payments.
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6
Add one to the periodic interest rate. For example, if the period interest rate is 0.625 percent, or 0.00625, you would get 1.00625.
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7
Raise the value from step six to the negative Nth power, where N is the number of payments that will be made over the life of the mortgage, found in step 5. For example, if the number from step 6 was 1.00625 and you would make 360 payments, you would calculate 1.00625^-360 and get 0.106139829.
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8
Subtract the value from step 7 from 1. For example, if your value is 0.106139829, you would get 0.893860171.
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9
Divide the periodic interest rate by the number found in step 8. For example, if the periodic interest rate is 0.00625 and the number from step 8 is 0.893860171, you would get 0.006992145.
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10
Multiply the result from step 9 by the amount you borrowed to calculate your monthly payment. For example, if you borrowed $300,000 you would multiply $300,000 by 0.006992145 to get $2,097.64 as your monthly payment.
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Tips & Warnings
You can also calculate your monthly mortgage payment using the following formula where P is the principal of the loan, I is the periodic interest rate, N is the number payments you will make on the loan.
Monthly Payment = P (I / (1 - (1 + I)^-N))
For example, if you have a 30 year mortgage at 7.5 percent for $300,000, your monthly payment would be $2,097.64.
Most lenders prefer that your mortgage payment not exceed 28 percent of your monthly income.
Lenders also take into consideration any other debt obligations that you have such as student or car loans. Your total debt payments usually cannot exceed 36 percent of your income.
You should take into consideration your closing costs, amount you will need to put into home repairs and amounts needed to put into escrow for homeowners insurance and real estate taxes when determining how much money you need to borrow. Your escrow, and sometimes your closing costs, can be rolled into your monthly principal and interest payment.
