Home
Back
Mortgage Payment Formula:
| From: | To: |
The mortgage payment formula calculates the fixed monthly payment required to fully amortize a loan over its term. This is the standard formula used by banks and financial institutions to determine mortgage payments.
The calculator uses the mortgage payment formula:
Where:
Explanation: The formula accounts for both principal repayment and interest charges, with the payment amount remaining constant throughout the loan term while the proportion going to principal increases over time.
Details: Understanding your mortgage payment helps with budgeting, comparing loan offers, and making informed decisions about home affordability. It also shows the total cost of borrowing over the loan term.
Tips: Enter the loan amount in dollars, annual interest rate as a percentage (e.g., 3.5 for 3.5%), and loan term in years. All values must be positive numbers.
Q1: Does this include property taxes and insurance?
A: No, this calculates only principal and interest. A full mortgage payment often includes escrow for taxes and insurance (PITI).
Q2: How does a larger down payment affect the payment?
A: A larger down payment reduces the loan amount (P), resulting in a lower monthly payment and less total interest paid.
Q3: What's the difference between 15-year and 30-year mortgages?
A: A 15-year mortgage has higher monthly payments but much less total interest. A 30-year mortgage has lower payments but more total interest.
Q4: How do interest rates affect payments?
A: Higher rates increase both monthly payments and total interest. Even a 0.5% difference can significantly impact the total cost.
Q5: Can I pay extra to reduce the loan term?
A: Yes, additional principal payments reduce the loan balance faster and can shorten the loan term, saving substantial interest.