Mortgage Calculator
\( \) \( \)\( \)\( \)Formula of the Monthly Payment of a Mortgage
A mortgage is a loan provided by any financial institution to help individuals or businesses purchase a property, such as a house or a
commercial building. The borrower receiving the loan, uses the funds to pay for the property upfront, and then repays the loan
with interest over a set period of time, typically 15 to 30 years.
The mortgage formula to calculate the monthly payment\( M \) of a mortgage is given by:
\[ M = P \times \dfrac{r \; (1 + r)^n}{(1 + r)^n \; – 1} \]
where
\( M \) is the monthly payment
\( P \) is the principal amount of the loan
\( r \) is the monthly interest rate; annual interest rate divided by 12.
\( n \) is the number of monthly payments; loan term in years multiplied by 12.
Term of a Mortgage
In the context of mortgages, the term refers to the length of time it takes to fully repay the loan. It is usually expressed in years.
For example, a mortgage with a term of 30 years means that the borrower will make payments on the loan for 30 years until it is fully paid off.
The term is an important factor in mortgage payments because it determines the length of time over which the loan is amortized (paid off).
The longer the term, the lower the monthly payment, but the more interest the borrower will pay over the life of the loan. Shorter terms generally result in higher monthly payments, but less total interest paid.
Intereset Rate
The interest rate is the amount of money that a lender charges a borrower for the use of their money, expressed as a percentage of the loan amount. In the context
of a mortgage, the interest rate is the annual rate at which interest is charged on the outstanding balance of the loan.
The interest rate is an important factor in determining the total cost of a mortgage, as it affects the amount of interest that the borrower will pay over the life of
the loan. Higher interest rates mean higher monthly payments and more total interest paid, while lower interest rates mean lower monthly payments and less total interest paid.
Use of the Calculator
Enter the total amount of the loan, the down payment if any, the annual rate of interest and the term in number of years then calculate.
Note that the the down payment in a mortgage is a payment made by the borrower towards the purchase price of a property at the time of buying.
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