How to Determine Your Monthly Mortgage Payment
Numerous online websites allow you to enter details about your mortgage into a calculator tool to determine your estimated monthly payment in a few easy clicks. But if you're curious how your mortgage company determines your monthly payment, you can do the calculation on your own by hand. Keep in mind that you may still need to have a hand-held calculator handy in order to complete the task.
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Instructions
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Gather key details about your proposed mortgage. You need the monthly interest rate (rate divided by 12), length of the mortgage and the principle balance (the amount you plan to finance). Define the monthly interest rate as "r," the term in months as "t" and the principal balance as "B." You can set "P" as the final monthly payment amount. For an example, use a loan lasting 360 months with a balance of $100,000 with a monthly interest rate of .5 percent (converted from six percent per year). Insert the monthly interest rate in decimal format (.005).
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Enter each figure (monthly rate, term, and principal into a formula to figure the monthly payment. The formula is P = B[r(1 + r)^t]/[(1 + r)^t - 1]. So in the example, the filled formula reads P=100,000[.005(1 + .005)^360]/[(1 + .005)^360 -- 1].
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Perform the calculation using a hand-held calculator that does exponential calculations. You can also use an online exponential calculation tool. In this example, the monthly payment for a 30 year $100,000 loan at a six percent annual interest rate is 3,011.2875/5.022575, which equals $599.55 per month.
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