Mortgage Calculator
Mortgage payment formula
A mortgage payment is the sum of principal, interest, and taxes. The formula used by the mortgage calculator to compute your monthly mortgage payment is:
M = P [ i(1 + i)^n ] / [ (1 + i)^n – 1]
The variables are as follows:
- M = monthly mortgage payment
- P = the total amount borrowed from a lender to purchase a home
- i = your monthly interest rate is the percentage you will pay on top of your outstanding balance. Your lender likely lists mortgage rates as an annual figure, so you’ll need to divide by 12, for each month of the year.
- n = the number of payments over the life of the loan.
Benefits of using a mortgage calculator
A mortgage calculator is a powerful tool that can help you make informed financial decisions. Here are some of the benefits of using a mortgage calculator:
- You can calculate your monthly mortgage payment, so you know what your payment will be each month.
- You can see how much extra money you’ll pay in interest over the life of your loan if you make additional payments or pay off other loans instead of paying down this one. That way, when deciding which investments seem like better returns on investment (ROI), it’s easier to compare apples-to-apples: will this investment save me money by reducing my overall interest payments over time?
- You may want to consider making an extra payment toward your principal each month—this can reduce the time required for paying off loans (and thus reduce associated costs).