Calculating Hourly Rate from Yearly Salary

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Mortgage Payment Calculator

Understanding Your Mortgage Payment

A mortgage is a long-term loan used to purchase real estate. The monthly payment on a mortgage typically consists of four main components, often referred to as PITI: Principal, Interest, Taxes, and Insurance. This calculator focuses on the Principal and Interest (P&I) portion of your payment, which is determined by the loan amount, the interest rate, and the loan term.

Loan Amount:

This is the total sum of money you borrow from the lender to buy your home. It's usually the purchase price of the home minus your down payment.

Annual Interest Rate:

This is the percentage charged by the lender for borrowing the money. A lower interest rate means you'll pay less in interest over the life of the loan.

Loan Term:

This is the duration, in years, over which you will repay the loan. Common terms are 15, 20, or 30 years. A shorter term generally results in higher monthly payments but less interest paid overall. A longer term means lower monthly payments but more interest paid over time.

How is the Monthly Payment Calculated?

The formula used to calculate the monthly principal and interest payment (M) is:

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

Where:

• P = Principal loan amount
• i = Monthly interest rate (annual rate divided by 12)
• n = Total number of payments (loan term in years multiplied by 12)

Example Calculation:

Let's say you are looking to buy a home and have a loan of $200,000 with an annual interest rate of 4.5% over 30 years.

• Principal (P) = $200,000
• Annual Interest Rate = 4.5%
• Monthly Interest Rate (i) = 4.5% / 12 = 0.045 / 12 = 0.00375
• Loan Term = 30 years
• Total Number of Payments (n) = 30 years * 12 months/year = 360

Using the formula, the estimated monthly principal and interest payment would be approximately $1,013.37.

Remember that this calculator provides an estimate for the principal and interest portion only. Your actual total monthly housing payment will likely be higher once property taxes and homeowner's insurance are included.