Mortgage Payment Calculator
Understanding Your Mortgage Payment
A mortgage is a significant financial commitment, and understanding how your monthly payment is calculated is crucial. The primary components of your monthly mortgage payment (often referred to as PITI) include Principal, Interest, Taxes, and Insurance. This calculator focuses on the Principal and Interest (P&I) portion, which is the core of your loan repayment.
Principal:
This is the actual amount of money you borrow to purchase your home. Each month, a portion of your payment goes towards reducing this outstanding balance.
Interest:
This is the cost of borrowing the money. The interest rate is typically expressed as an annual percentage. A portion of your monthly payment covers the interest accrued on the outstanding principal balance. Over the life of the loan, the amount of interest you pay will decrease as your principal balance reduces.
Loan Term:
This is the total duration over which you agree to repay the loan, usually expressed in years (e.g., 15, 20, or 30 years). A shorter loan term generally means higher monthly payments but less total interest paid over the life of the loan. A longer loan term usually results in lower monthly payments but more total interest paid.
How the Calculation Works (P&I):
The monthly payment for Principal and Interest (P&I) is calculated using the following formula:
M = P [ i(1 + i)^n ] / [ (1 + i)^n – 1]
Where:
- M = Your total monthly mortgage payment (Principal & Interest)
- P = The principal loan amount
- i = Your monthly interest rate (annual rate divided by 12)
- n = The total number of payments over the loan's lifetime (loan term in years multiplied by 12)
Example:
Let's say you're taking out a mortgage of $250,000 with an annual interest rate of 5% and a loan term of 30 years.
- Principal (P) = $250,000
- Annual Interest Rate = 5%
- Monthly Interest Rate (i) = 5% / 12 = 0.05 / 12 = 0.00416667
- Loan Term = 30 years
- Total Number of Payments (n) = 30 * 12 = 360
Using the formula, the estimated monthly principal and interest payment would be approximately $1,342.05.
Disclaimer: This calculator provides an estimate for the Principal and Interest portion of your mortgage payment only. It does not include potential costs for property taxes, homeowners insurance, or Private Mortgage Insurance (PMI), which would increase your total monthly housing expense.