How to Calculate the Monthly Payment for a Home Loan
A home loan, also known as a mortgage, is used to finance the purchase of a home. Knowing how much the monthly payment will be is vital to making sure that you will be able to make the monthly payments and still have enough left over for other expenses. The monthly payment is based on the sum lent to you by the bank, the interest rate charged by the bank and the length of time you will take to repay the home loan.
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Instructions
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Determine how much money you need to borrow, what the annual interest rate will be on your home loan and how long you will take to repay the loan.
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Determine the monthly interest rate by dividing the annual interest rate by 12. For example, if your annual interest rate is 4.8 percent then your monthly interest rate is 0.4 percent.
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Convert the monthly interest rate percent to a decimal by dividing by 100. For example, if your monthly interest rate was 0.4 percent, the monthly interest rate expressed as a decimal would be 0.004.
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Determine how many payments you will make over the life of the loan by multiplying the number of years by 12. For example, if you take out a 20-year mortgage, you would make 240 payments.
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Calculate your monthly payment for your home loan by using the following formula where A is the amount borrowed, P is the number of payments you will make over the life of the loan and M is the monthly interest rate expressed as a decimal.
Monthly payment = A * ( M * (1 + M)^P) / ((1 + M)^P - 1)
For example, if you borrowed $343,000, your monthly interest rate expressed as a decimal was 0.004 and you were going to repay the loan over 240 payments, your monthly payment would be $2,225.92.
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Tips & Warnings
Applying for multiple home loans within a month will have a minimal effect on your credit score because the FICO scoring model only counts the inquiries as one inquiry when calculating your credit score.
The caret (^) is used to denote an exponent in mathematical formulas.
