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You can do it, but it isn't exactly straight forward. Here is the basic formula that you will need to follow:

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

So, we buy a house for $200,000 with a 3% interest rate, and the term of the mortgage is 30 years (360 months)

Convert the interest from percentage to decimal, and then to monthly.

3% divided by 100 = 0.03 and then 0.03 divided by 12 months = 0.0025

So i = 0.0025

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

T=360

Break the calculations into sections, doing the innermost parenthesis first

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

(1+0.0025) = 1.0025

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

This next part is the most complex. You have to deal with a negative exponent. 1.0025 to the -360 power. To do this you have to convert the negative to a positive.

On your scientific calculator, you will need to use the button that has an X with a small y above it. This is the "power" or exponent button.

Enter 1.0025 xy 360 = 2.45684

Then divide 1 by 2.45684 = 0.40703

The rest is relatively simple

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

1 - 0.40703 = 0.59297

M = P * (0.0025 / 0.59297)

0.0025 Divided by 0.59297 = 0.00422

P is our principle, which is $200,000. Multiplying 200,000 by 0.0042 will give us a monthly mortgage payment of $844

M = $844 per month

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Wiki User

11y ago

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