How do you figure a mortgage payment?

Answer 1

I will try and go over this as simple as possible, as it can be a little complex. The formula for calculating your monthly mortgage payment is:

M = P * (i / (1 - (1+i)^-T))

M - is the monthly payment

P - is the principle

i - is the monthly interest

T - is the term

First convert your interest (i) to a decimal

3% interest / 100 = .03 Then divide .03 by 12 months = .0025

M = P * (0.0025 / (1 - (1+0.0025)^-T))

(1+0.0025) = 1.0025

M = P * (0.0025 / (1 - (1.0025)^-T))

Next add in your Term, in this case it is 30 years (30x12=360 months)

T=360

M = P * (0.0025 / (1 - (1.0025)^-360))

1.0025 to the -360 power. For this you need to turn the negative exponent to a positive exponent, which means fractions!

1

--------------- = 0.40703

1.0025(360)

M = P * (0.0025 / (1 -0.40703))

(1 -0.40703) = 0.59297

M = P * (0.0025 / 0.59297)

(0.0025 / 0.59297) = 0.00422

M = P * (0.00422)

P is the Principle, or the total amount that you are borrowing.

In this case P = $250,000

M= $250,000 * 0.00422

M = $1055

So the monthly payment would be $1,055