Are you planning to get a loan to buy a new home? Or you already bought it but don't know how much you have to pay for your mortgage? In both cases, you'll need to know how to calculate your monthly mortgage payments.
We understand that this may seem like a daunting task, but with the help of this article, you'll be able to do it in no time. Keep reading to learn more.
The first step is to find out the mortgage rate. Mortgage lenders offer different rates, so finding the best one for you is important. The higher the rate, the higher the payments will be.
Mortgage lenders also ask for a down payment, usually 20% of the property's value. This payment is not part of mortgage payments, but it is still an important factor to consider when buying a house.
Now that you know the basic factors for a mortgage payment, it's time to start calculating yours.
Use the following formula:
M = P [ I ( 1 + I )^N ] / [ ( 1 + I )^N – 1 ]
Where:
Say you want to buy a $250,000 house. You get a 30-year mortgage with a 20% down payment and a 5% annual mortgage rate.
First, we have to take the 20% down payment out of the $250,000, which leaves you with $200,000. This is the Loan Amount (P).
P = 250,000 (property's value) - 50,000 (20% of 250,000) = $200,000
Since this formula is for monthly payments, we need to divide the mortgage rate by 12 to get the monthly interest rate.
I = 0.05 (rate expressed as a decimal) / 12 (months in a year) = 0.004167
We also need to know how many payments we'll be making for 30 years (N). In this case, we'll be making 360 payments (30 years x 12 months).
Now that we have all the information we need, we can finally calculate our monthly mortgage payment. Using the equation, we get:
M = P [ I ( 1 + I )^N ] / [ ( 1 + I )^N – 1 ]
M = 200,000 * [ 0.004167 ( 1 + 0.004167)^360 ] / [ ( 1 + 0.004167 )^360 – 1 ]
M = 200,000 * [ 0.004167 ( 1.004167 )^360 ] / [ ( 1.004167 )^360 – 1 ]
M = 200,000 * [ 0.004167 * 4.468278 ] / [ 4.468278 – 1 ]
M = 200,000 * 0.018618 / 3.468278
M = 200,000 * 0.005368
M = 1,073.64
According to this example, the monthly mortgage payment is $1,073.64 for a house worth $250,000.
Now that you know how to calculate mortgage payments, you're one step closer to buying your dream home! Remember to look around for the best mortgage rates and down payment options before making any decisions.
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