How to Calculate Your Mortgage Payment for a Refinance or Purchase

Calculate Your Mortgage PaymentCan you calculate your mortgage payment?

Sure, there are new purchase and refinance mortgage payment calculators out there on the web. But if you’re somewhat of a numbers geek / control freak like me, you’re going to want know how to do it yourself.

How to Calculate Your Mortgage Payment on a Purchase

It’s a great time to be calculating a mortgage payment. It’s almost summer and I know a lot of you are considering a move, or making your first purchase. Heck, it’s a great time to be doing so. Housing prices are down and mortgage rates are at all time lows. Understanding your monthly mortgage payment is a big part of knowing whether you can afford a new home. Here’s how to make the calculation for a fixed rate loan:


A = P [ r(1 + r)n / ((1 + r)n – 1) ]


Where…

A = Your Monthly Payment
P = Initial Principal or Loan Amount
r = Interest Rate Per Period
n = Total Number of Payments

As an example, let’s assume you’re purchasing a new home for $200,000 on a 30 year loan at 5%. Here’s how the formula would break down:

A = $200,000 [ 0.00417(1 + 0.00417)360 / ((1 + 0.00417)360 – 1) ]

note: r = 0.05/12 months and n = 30 years * 12 months

A = $200,000 [ 0.00417(1.00417)360 / ((1.00417)360 – 1) ]
A = $200,000 [ 0.00417 * 4.473 / (4.473 – 1) ]
A = $200,000 [ 0.00417 * 4.473 / 3.473 ]
A = $200,000 [ 0.00417 * 1.2879 ]
A = $200,000 [ 0.00537 ]
A = $1,074

In this example, your new monthly payment would be $1,074.

How to Calculate Your Mortgage Payment on a Refinance

Refinancing is huge right now. Many people don’t need or want to move, but would like to pay less monthly for their home. Or they may be considering a move from a 30 year mortgage to a 15 year version. Awesome! Depending on your current rate, you could end up paying about the same monthly, considering new low mortgage interest rates. But before you call up a mortgage broker or bank to start the process, it’s a great idea to take a second and calculate your new mortgage payment using the estimated new rates and terms.

To calculate your monthly payment on a refinance, simply use the same formula above, but change the loan amount and term to reflect the changes you’re making in the refinance. For instance, if your house was originally purchased for $200,000, but you’ve paid off $25,000, you’ll need to make your loan amount $175,000 for the calculation.

Add in the Monthly Payment Extras

Your payment, as calculated above, only takes into account the principal and interest portion of the payment. Be sure to factor in other costs: insurance, property taxes, private mortgage insurance, and association dues. These don’t have to be included in the payment usually. But some lenders may force you to based on your down payment. Since you are using this calculator to essentially estimate affordability, you are going to want add these costs to the total monthly payment calculated above.

Owning a home is definitely worth the monthly cost in my opinion. Hopefully with this calculation, you’re armed with the knowledge to know your monthly payment yourself. Good luck in your purchase or refinance.

For an extensive list of the purchase and refinance interest rates in your area, check out my brand new mortgage rates page.



Last Edited: June 23, 2014 @ 10:35 am The content of ptmoney.com is for general information purposes only and does not constitute professional advice. Visitors to ptmoney.com should not act upon the content or information without first seeking appropriate professional advice. In accordance with the latest FTC guidelines, we declare that we have a financial relationship with every company mentioned on this site.
About Philip Taylor

Philip Taylor, aka "PT", is a CPA, financial writer, FinCon CEO, and husband and father of three. He created PT Money back in 2007 to share his thoughts on money and to meet others passionate about managing their finances. All the content on this blog is original, and created or edited by PT. Read more about Philip Taylor, and be sure to connect with him on Twitter, Facebook, or view the Philip Taylor+ Google profile.

Comments

  1. The formula you show isnt quite right. You have:
    P [ r(1 + r)^n / (1 + r)^n – 1 ]
    But you need an extra set of parentheses in the denominator:
    P [ r(1 + r)^n / ((1 + r)^n – 1) ]

  2. Good catch, Jared. I took the formula from a page that was displaying the numerator over the denominator. Thus, the parentheses wasn’t needed. I should have added it when I converted to a single line. I made the edit above and it’s now displaying correctly above.

  3. isn’t there a calculator that handles this type of math?? i would think that there is. BTW this was one of the things that i did in college; it was kinda interesting

  4. @kt – yeah, there are tons of mortgage payment calculators on the web. i even checked my math with one. but it’s nice to be able to do it yourself and refresh your math skills. keeps me young. 🙂

  5. Cee Howard says:

    Thanks for this very helpful public service.

    Now for comments on how to get a payoff plan amortized according to the bank’s calculations:
    My husband and I went through 4 different people online, each calculating different results, before appealing to a supervisor who would calculate it and then provide a written copy with a signature we felt we could count on. Do you suppose they like our plans to pay off a mortgage less than they like that monthly interest flow? My best to you.