June 2021

How To Calculate A Mortgage Payment

How To Calculate A Mortgage Payment

Mortgages are complicated. But they don’t have to be. Estimating your monthly mortgage payment using a Purchase Mortgage Calculator can give you a clear housing budget in minutes. You simply plug in a few numbers, and a comprehensive number (think principle, interest, insurance, etc.) spits out. Of course, it’s still important to know a bit about how this mortgage payment is determined and how a calculator helps you.

How A Mortgage Payment is Calculated

If you want heavy math, this is how a mortgage payment is calculated:

M = P [ i(1 + i)^n ] / [ (1 + i)^n – 1]

Yes, it looks like Einstein-level math, but it’s actually much simpler if you know the variable, which are:

  • M is the monthly mortgage payment.
  • P is the principal amount.
  • i is the interest rate. This is typically listed as an annual figure. So, you would need t divide by 12 to figure out the monthly interest rate. 
  • n is the number of payments over the life of the loan. This is where a 30-year fixed-rate mortgage or 15-year fixed-rate mortgage comes into play. So, with 30 years, you would have 360 payments. 

But, other factors besides just the principle and interest go into the total monthly mortgage payment. That’s where a purchase mortgage calculator comes in handy. 

How to Use a Mortgage Calculator

While that daunting math above is part of figuring your monthly mortgage cost, it’s much easier just to answer a few personal financial questions and get an accurate result. Plus, a calculator takes into account important factors like taxes, PMI, and more. Here we break down exactly how to use our Purchase Mortgage Calculator.

  • Purchase Price: Here, you will enter the price of the home you’re looking to buy.
  • Down Payment: You have the option to put in a specific amount or percentage. So, if you know that you only have $30,000 saved to put down, then input that number, and a percentage will be generated. If you have a bit of wiggle room and understand how different percentages will affect your final monthly payment, you can input a percent for the down payment. Adjusting this number each time you use the calculator can reveal a range of monthly payment amounts. This gives you educated insight into how much you want to put upfront versus how much you want your monthly payment to be.
  • Zip Code: Next, you’ll be asked to input the zip code of the home you’re looking to buy. This is extremely important as tax rates vary significantly. Two towns next to each other could have different rates meaning your monthly payment could shift by hundreds of dollars.
  • Credit Score: Here, you will input your credit score range. This number is used to help determine your interest rate, again affecting the overall monthly payment amount.
  • Loan Term: The standard is 30-year fixed-rate. But you can choose 20, 15, and even 10-year loan terms to see how the monthly rate changes. 
  • Military/Veteran: Members of the military and veterans have special access to low-interest loans and qualify for more lenient rules like 0% down payment. So, it’s important to note if you fall into this category to determine any additional benefits you might have.
  • Include PMI: PMI is loan insurance and is required if you are putting down less than 20%. You’ll want to check that box if that’s the case.
  • HOA Fees: If you’re moving into a condo or neighborhood with HOA fees (to cover landscaping, the lobby, etc.), you’ll want to find out that amount and input it in the calculator. Again, this can change your overall monthly costs by tens of dollars to hundreds depending on the HOA.
  • Annual Homeowners Insurance: We automatically tabulate that for you based on averages. Get A Rate over estimates this amount by 20% to ensure you’re fully prepared for that monthly cost.  But you have the option to enter an exact amount if you have a separate quote. TK.
  • Property Type: This can change the risk factor of a loan, which can then change the rate. For example, multi-family homes are higher risk for a lender compared to a single family home. 
  • Property Use:Similar to property type, the property use will also change the risk factor of the loan. Investment homes are higher risk compared to owner occupied homes.

After inputting all of this information, you will see a Total Monthly Payment and a breakdown below into Principal and Interest, Property Taxes, Homeowner’s Insurance, HOA DUES (if there are any), and PMI (which is automatically calculated for you). The Total Monthly Payment can be based on terms that start at 10 years and go up to a 30-year fixed mortgage and the TK interest rate. The rate is calculated using a pricing engine integrated in the system that reviews the loan scenario and calculates the rate. 

To find out if you qualify for a lower rate, click on “See More Rates.” You’ll be taken to a new page where all of the information you just entered is carried over. Here you can adjust those factors like loan term and choose a goal ranging from the lowest payment to the lowest interest rate. 

Why a Mortgage Calculator Helps You

When trying to answer the question “how much house can I afford” or “how much mortgage I can afford,” determining your monthly mortgage payment will be key. After all, it’s the biggest chunk of your cost of living. By using our Purchase Mortgage Calculator, you can estimate this important number before buying a home. Plus, since it can calculate different scenarios, you’ll be armed with the knowledge to make major financial decisions like increasing or lowering the down payment. And more knowledge equals more confidence in the home-buying process. 

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