Use this tool to quickly determine the monthly payment required for your mortgage or loan, helping you budget for your home ownership goals.
Mortgage Monthly Payment Calculator
Mortgage Monthly Payment Formula
The standard formula used to calculate the fixed monthly payment for a loan is:
M = P [ i (1 + i)^N ] / [ (1 + i)^N – 1 ]
Source: Bankrate – Mortgage Payment Calculation
Variables Explained:
- M: Monthly Payment (The value we are solving for).
- P: Principal Loan Amount (The initial amount borrowed).
- i: Monthly Interest Rate (Annual Rate / 12 / 100).
- N: Total Number of Payments (Loan Term in Years × 12).
What is Mortgage Calculator Monthly Payment?
A mortgage calculator is an essential financial tool that helps prospective homeowners and borrowers determine the exact amount of money they will need to pay their lender each month. This calculation is vital for budgeting, as it gives a clear picture of the ongoing cost of homeownership beyond the initial down payment and closing costs.
The calculated monthly payment typically includes both the principal repayment and the interest charges. Over the life of a loan (e.g., 30 years), the proportion of the payment dedicated to interest gradually decreases, while the portion dedicated to reducing the principal balance increases—a process known as amortization. Understanding this monthly figure allows users to compare different loan terms (15-year vs. 30-year) and interest rates effectively.
How to Calculate Monthly Mortgage Payment (Example)
Let’s calculate the monthly payment for a $200,000 loan with a 4.0% annual rate over 30 years.
- Convert Annual Rate to Monthly Rate (i): Divide the annual percentage rate (4.0%) by 12 (months) and by 100 to get a decimal. $i = 0.04 / 12 = 0.003333$.
- Calculate Total Number of Payments (N): Multiply the loan term in years by 12. $N = 30 \text{ years} \times 12 \text{ months/year} = 360 \text{ payments}$.
- Calculate the Compounding Factor: Compute $(1 + i)^N$. In this case, $(1 + 0.003333)^{360} \approx 3.31849$.
- Apply the Formula: Plug the values into the formula $M = P [ i (1 + i)^N ] / [ (1 + i)^N – 1 ]$. $M = 200,000 [ 0.003333 \times 3.31849 ] / [ 3.31849 – 1 ]$.
- Solve for M: $M = 200,000 \times (0.01106 / 2.31849) \approx \$954.83$.
Related Financial Calculators
- Amortization Schedule Generator
- Loan Payoff Date Estimator
- Simple Interest vs Compound Interest Calculator
- Refinance Savings Estimator
Frequently Asked Questions (FAQ)
What is included in a monthly mortgage payment?
The primary components are principal (the borrowed amount) and interest. However, many lenders also collect funds for property taxes and homeowner’s insurance (escrow), which are bundled into the total monthly payment.
Does a higher down payment reduce the monthly payment?
Yes, absolutely. A higher down payment reduces the principal loan amount (P) you need to borrow. Since the monthly payment is calculated based on the principal, a smaller principal results in a smaller required monthly payment.
What is Private Mortgage Insurance (PMI)?
PMI is an insurance policy protecting the lender if a borrower defaults. If your down payment is less than 20% of the home’s purchase price, you typically must pay PMI, which adds to your total monthly payment.
How does the loan term (15 vs. 30 years) affect the total interest paid?
A shorter loan term (e.g., 15 years) has higher monthly payments but results in significantly less total interest paid over the life of the loan compared to a longer term (e.g., 30 years), as you pay off the principal faster.