How to Calculate Different Mortgage Payments
When shopping for a mortgage, different banks will charge different rates to the borrower. The different interest rates will change the amount of monthly payments. Banks may also differ on the time period that the borrower has to pay back the loan. Most people should choose the bank with the lowest interest rate. To calculate different payments the borrower only needs to plug in the different variables, interest rate and time, into the mortgage payment formula to find the new monthly payments.
Other People Are Reading
Instructions
-
-
1
Find the different interest rates and time periods for loan repayments. In addition, you need to know the amount you will borrow. For example, a person wants to borrow $165,000. One bank will charge 8 percent interest annually and have a repayment of 20 years.
-
2
Divide the interest rate per month by 12 months. Then multiply the number of years of repayment by 12 months. In the example, 8 percent divided by 12 months equals 0.006666667. Then, 20 years times 12 months equals 240.
-
-
3
Multiply the amount borrowed by the interest rate per month. This is the numerator of the formula. In the example, 0.006666667 times $165,000 equals $1,100.
-
4
Add one to the interest rate per month. In the example 1 plus 0.006666667 equals 1.006666667.
-
5
Raise the sum calculated in Step 4 to the power of the negative amount of loan payments required. You determined the number of loan payments required in Step 2. In the example, 1.006666667 raised to the power of -240 equals 0.202971389.
-
6
Subtract the number calculated in Step 5 from one. This is the denominator of the formula. In the example, 1 minus 0.202971389 equals 0.797028611.
-
7
Divide the numerator calculated in Step 3 by the denominator calculated in Step 6. In the example, $1,100 divided by 0.797028611 equals a monthly mortgage payment of $1,380.13.
-
8
Repeat these steps using different variables for the different mortgages.
-
1
Tips & Warnings
When calculating the monthly payment in Step 7, be sure to round up to the nearest penny.
References
- Photo Credit House image by Rachabodin from Fotolia.com
