How this Mortgage Calculator Works
Understanding how your monthly mortgage payments are calculated is essential for financial planning. This calculator uses the standard amortization formula to determine your monthly principal and interest payment.
M = P [ i(1 + i)^n ] / [ (1 + i)^n – 1 ]
Where:
- M = Total monthly payment.
- P = The principal loan amount (Home Price minus Down Payment).
- i = Monthly interest rate (Annual Interest Rate divided by 12).
- n = Total number of payments (Loan Term in years multiplied by 12).
Definition of Terms
Principal
This is the amount of money you borrow from the lender. It is calculated by taking the total price of the home and subtracting your down payment.
Down Payment
The initial upfront portion of the total amount due. A larger down payment reduces the principal loan amount and often secures a lower interest rate.
Interest Rate
The cost of borrowing the principal loan amount. It is expressed as a percentage and determines how much interest you pay over the life of the loan.
Step-by-Step Instructions
- Enter Home Price: Input the total purchase price of the property.
- Enter Down Payment: Input the cash amount you plan to pay upfront.
- Select Loan Term: Choose how many years you will take to repay the loan (typically 15 or 30 years).
- Enter Interest Rate: Input the annual interest rate offered by your lender.
- View Result: The calculator immediately updates your estimated monthly payment and displays a visual breakdown of Principal vs. Interest.