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 understanding your refinancing options and comparing different mortgage offers.

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)
• \( n \) — Number of payments (loan term in years × 12)

Explanation: The formula accounts for both principal repayment and interest charges, with more interest paid earlier in the loan term.

3. Importance of Mortgage Calculation

Details: Accurate mortgage calculations help borrowers understand their long-term financial commitment, compare refinancing options, and budget effectively.

4. Using the Calculator

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

5. Frequently Asked Questions (FAQ)

Q1: Should I include taxes and insurance 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: Refinancing can lower payments by reducing interest rates or extending the loan term, though extending may increase total interest paid.

Q3: What's the difference between APR and interest rate?
A: The interest rate is the cost of borrowing, while APR includes fees and other loan costs for a more complete cost picture.

Q4: How often should I consider refinancing?
A: Consider refinancing when rates drop significantly (typically 0.5-1% below your current rate) or your credit improves substantially.

Q5: Are there prepayment penalties?
A: Some loans have penalties for early payoff. Check your loan terms before refinancing or making extra payments.