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 principal and interest (P&I) portion of your mortgage payment is determined by the loan amount, the annual interest rate, and the loan term. This calculator helps you estimate that P&I payment based on the information you provide.
Key Factors:
Loan Amount: This is the total amount of money you are borrowing to purchase your home. A larger loan amount will generally result in higher monthly payments.
Annual Interest Rate: This is the percentage of the loan principal that you will pay in interest each year. A lower interest rate means you pay less in interest over the life of the loan, leading to lower monthly payments.
Loan Term (Years): This is the length of time you have to repay the loan. Common terms are 15, 20, or 30 years. A shorter loan term will result in higher monthly payments but will save you money on interest in the long run. A longer term has lower monthly payments but you'll pay more interest overall.
Payment Frequency: How often you make payments (monthly, bi-weekly, or weekly) affects how quickly you pay down the principal. Bi-weekly payments, for instance, typically result in one extra full monthly payment per year, helping you pay off your mortgage faster.
How the Calculation Works:
The standard formula used to calculate the monthly mortgage payment (M) is:
M = P [ i(1 + i)^n ] / [ (1 + i)^n – 1]
Where:
- P = Principal loan amount
- i = Monthly interest rate (Annual interest rate / 12)
- n = Total number of payments (Loan term in years * 12 for monthly)
Our calculator adapts this formula for different payment frequencies. It's important to remember that this calculation typically only covers the principal and interest. Your actual total monthly housing payment will likely also include property taxes, homeowner's insurance, and potentially Private Mortgage Insurance (PMI) or Homeowner Association (HOA) fees.