Purchasing a home is a significant milestone that many people strive to reach during their lives. Not only does it come with plenty of benefits that you can’t get from living in an apartment, but owning a home also drastically increases your net worth. Before you move forward, though, you’ll need to understand what your mortgage payments will be.
Let’s take a look at all the information you should know about how to calculate monthly mortgage payments.
How Much Is Your Loan?
As you might guess, the first step you need to take in order to estimate monthly mortgage payments involves considering the total amount of your loan.
Fortunately, this is as straightforward as it sounds. If your loan is for $500,000, for example, this number will serve as your mortgage principal.
What Is Your Monthly Interest Rate?
Most people find that the interest rate they are able to secure will vary compared to somebody they know.
This is due to the fact that lenders consider multiple attributes before they provide an interest rate. These include your credit score, how much you put forth as a down payment, and your debt-to-income ratio.
The more favorable a lender sees you in each of these categories, the better your interest rate will be. In order to find your monthly interest rate, you simply divide your annual percentage rate (APR) by 12.
How Many Payments Are You Required to Make?
The number of payments that you make will play a large role in determining what your monthly payment amount is. To calculate this number, you will multiply the number of years in your loan by 12. So, someone with a 15-year mortgage would be required to pay 180 monthly payments.
Additional Nuances to Consider
When considering how to estimate monthly mortgage payments accurately, there are other details you need to keep in mind. These include property taxes, homeowners insurance, and whether or not you need private mortgage insurance.
To elaborate on the latter factor, those who do not currently have 20% equity in their home will need to purchase private mortgage insurance. This is a policy that aims to protect lenders in the event that borrowers do not make the required payments on their mortgage.
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How Can I Calculate It?
The formula to calculate your monthly mortgage payment is simple. First, let’s define the key variables:
- P = The principal loan amount
- i = Your monthly interest rate
- N = The total number of months of your loan
Then, you can plug this information into the following formula:
M = P I(1 + I)^n/(1 + I)^n – 1
The result is the amount of money that you will pay each month.
Knowing How to Calculate Monthly Mortgage Payments Can Seem Difficult
It’s not nearly as complex as you may think at first, though. The above guide about how to calculate monthly mortgage payments will help ensure you have a strong understanding of what you will pay during homeownership.
Looking for more tips that can help you out later on? Check out the rest of our blog for plenty of more useful information.