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Mortgage Payment Formula:
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The mortgage payment formula calculates the fixed monthly payment required to fully amortize a loan over its term. It accounts for the principal amount, interest rate, and loan duration to determine the periodic payment amount.
The calculator uses the standard mortgage payment formula:
Where:
Explanation: The formula calculates the fixed payment that pays off the loan with interest over the specified term, with each payment containing both principal and interest components.
Details: Understanding your mortgage payment helps with budgeting, comparing loan options, and making informed decisions about home affordability. It also shows the total cost of borrowing over the life of the loan.
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. The calculator will show your estimated monthly payment, total repayment amount, and total interest paid.
Q1: Does this include property taxes and insurance?
A: No, this calculates only principal and interest. Your actual payment may include escrow for taxes and insurance (PITI).
Q2: How does a larger down payment affect payments?
A: A larger down payment reduces the principal (P), resulting in lower monthly payments and less total interest.
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 interest.