How do I Calculate Monthly Mortgage Payments Per Amount Borrowed at a Fixed Interest Rate?
Before you buy a home, you need to consider how much you can afford to pay each month for the monthly payment. According to Bank Rate, most lenders do not want your mortgage costs to exceed 28 percent of your income or your total debts to exceed 36 percent of your income. With a fixed-rate mortgage, your monthly payment remains the same over the term of the loan, rather than adjusting to market rates.
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Instructions
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1
Divide the annual interest rate by 12 to calculate the monthly interest rate on your mortgage. You must use the monthly rate because mortgages require monthly payments. For example, if your annual interest rate equals 5.79 percent, you would divide 5.79 percent by 12 to get a monthly rate of 0.4825 percent.
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2
Change the monthly percentage to a decimal by multiplying by 0.01, because percent means "per 100." In this example, you would multiply 0.4825 by 0.01 to get 0.004825.
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3
Add 1 to the monthly interest rate as a decimal. In this example, you would figure 1 plus 0.004825 to be 1.004825.
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4
Find the number of payments you will make on your mortgage by multiplying the mortgage term by 12. For example, with a 30-year mortgage, you would make 360 monthly payments because 12 times 30 equals 360.
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5
Use a calculator to figure the result from Step 3 raised to the result from Step 4. In this example, you would raise 1.004825 to the 360th power to get 5.65659951.
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6
Multiply the amount borrowed by the monthly interest rate expressed as a decimal by the result from Step 5. In this example, if you borrowed $271,000, you would multiply $271,000 by 0.004825 by 5.65659951 to get $7,396.428104.
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Subtract 1 from the result from Step 5. In this example, you would take away 1 from 5.65659951 to get 4.65659951.
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Divide the result from Step 6 by the result from Step 7 to calculate the monthly mortgage payment. Completing the example, you would divide $7,396.428104 by 4.65659951 to get a monthly payment of $1,588.38.
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References
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