Mortgage Payment Calculator
Understanding Your Mortgage Payment
A mortgage is a loan used to purchase real estate, typically a home. The mortgage payment is the amount you pay each month to your lender to repay the loan. This payment usually includes several components, primarily the principal and interest, but can also encompass property taxes, homeowners insurance, and private mortgage insurance (PMI).
Key Components of a Mortgage Payment:
- Principal: This is the actual amount of money you borrowed to buy your home. Each monthly payment reduces the outstanding balance of your loan.
- Interest: This is the cost of borrowing money. The interest rate on your mortgage determines how much you'll pay in interest over the life of the loan.
- Taxes: Property taxes are levied by your local government and are usually collected by your mortgage lender as part of your monthly payment. They are held in an escrow account and paid on your behalf when due.
- Insurance: This typically includes homeowners insurance, which protects your home against damage from events like fire, storms, or theft. Lenders often require this to protect their investment. PMI is required if your down payment is less than 20% of the home's purchase price.
How the Mortgage Payment is Calculated:
The core of your monthly mortgage payment (principal and interest) is calculated using a formula that takes into account the loan amount, the interest rate, and the loan term. The standard formula for calculating the monthly 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)
This calculator focuses on estimating the principal and interest portion of your monthly mortgage payment. It's important to remember that your actual total monthly housing expense may be higher once property taxes, insurance, and other potential fees are included.
Use this calculator to get a clear estimate of your principal and interest payment and better plan your homeownership budget.
Example:
Let's say you're looking to buy a home and need a mortgage for $250,000. The annual interest rate is 4.0%, and you're opting for a 30-year loan term.
- Principal (P): $250,000
- Annual Interest Rate: 4.0%
- Monthly Interest Rate (i): 4.0% / 12 months = 0.003333…
- Loan Term: 30 years
- Number of Payments (n): 30 years * 12 months/year = 360
Plugging these values into the formula, the estimated principal and interest payment would be approximately $1,193.54 per month. This calculator will help you determine this for your specific loan scenario.