How to Calculate House Notes
You may be one of many people who have purchased a house by borrowing money with a 15- or 30-year note. Your note stated that you would pay the money back at a particular APR, or annual percentage rate, for a set payment amount each month, for a particular period of time. If any one of these specifics of a loan is unknown, you may determine it by a mathematical calculation using the other numbers. For the purposes of this article, assume you have a $62,000 mortgage at 6 percent interest for 30 years.
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Instructions
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Use the following formula to determine monthly payments:
Payment = Loan Amount [Interest Rate/12(1+Interest Rate/12)^360/ (1+Interest Rate/12)^360 -- 1)].
OK, so you're not a mathematical genius and this is Greek to you, but break it down.
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Calculate what is inside the first set of parenthesis. We'll start with 1 + .06/12, where .06 represents your 6 percent annual interest rate and 12 represents the number of months in the year. Remember that 6 percent is an annual percentage rate, so that you have to divide by 12 to get the monthly rate. Since .06/12 equals .005, then 1 + .005 equals 1.005. Your formula will now appear as:
Payment = $62,000 [Interest Rate/12(1.005)^360/(1+Interest Rate/12)^360 -- 1)]
The exponent, 360, represents the number of months in a 30-year loan, i.e. 12 x 30. Use your scientific calculator to determine that 1.005 to the 360th power equals 6.02258. From your previous calculations you will remember that .06/12 equals .005. Now, multiply 6.02258 by your monthly rate of .005. This equals .03011. At this stage, your formula will appear as:
Payment = $62,000 [.03011/(1+Interest Rate)^360 -- 1]
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Calculate what is inside the parenthesis again. You will note from the prior calculations that (1 + Rate/12)360 equals 6.02258. As shown in the formula, now subtract 1 from 6.02258, which equals 5.02258. After these calculations, your formula appears as
Payment = $62,000 [03011/5.02258]
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Divide .03011 by 5.02258. The result is .006 rounded. Multiply $62,000 x .006, which calculates to $372. This will be your monthly payment amount. Due to rounding in the calculations, your final payment may be less than the others. Many mortgage sites on the Internet have built-in mortgage calculators that will determine the payment amount for you. Some may even allow you to produce a pre-printed amortization schedule. An amortization schedule will show how much of your payment is interest each month, how much is principal and give you a running total of the principal balance due on your loan after each payment is made.
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Use a computer program or an appropriate multifunction calculator if you are attempting to determine the term or the interest rate when you have the remaining information. Those calculations are more difficult.
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References
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