1. What is the Mortgage Payment Formula?

The mortgage payment formula calculates the fixed monthly payment required to fully amortize a loan over its term. It's essential for refinancing decisions to determine if you'll save money with a new loan.

2. How Does the Calculator Work?

The calculator uses the standard mortgage payment formula:

Where:

• \( PMT \) — Monthly payment
• \( P \) — Principal loan amount
• \( r \) — Monthly interest rate (annual rate ÷ 12)
• \( n \) — Total number of payments (years × 12)

Explanation: The formula accounts for both principal and interest payments over the life of the loan, with more interest paid earlier in the loan term.

3. Importance of Refinancing Calculation

Details: Accurate payment calculation helps determine if refinancing makes financial sense by comparing current and proposed payments, considering closing costs and break-even points.

4. Using the Calculator

Tips: Enter the new loan amount, annual interest rate (without % sign), and loan term in years. The calculator will show your estimated monthly payment.

5. Frequently Asked Questions (FAQ)

Q1: What costs aren't included in this calculation?
A: This calculates principal and interest only. Your actual payment may include property taxes, insurance, and PMI if applicable.

Q2: How does refinancing save money?
A: Savings come from lower interest rates, shorter terms, or both. Compare total interest paid on current vs. new loan.

Q3: What's a good refinance rate?
A: Typically 0.5-1% below your current rate makes refinancing worthwhile, but depends on closing costs and how long you'll stay in the home.

Q4: Should I refinance to a shorter term?
A: Shorter terms save interest but increase monthly payments. Calculate both options to see what fits your budget.

Q5: How do closing costs factor in?
A: Divide closing costs by monthly savings to find your break-even point (how many months until you recoup costs).