Can 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) ]
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.