How to Calculate a New Mortgage

It's a good idea to figure the cost of a mortgage before signing an offer to purchase.

It's a good idea to figure the cost of a mortgage before signing an offer to purchase.

Thirty years is a long time. When you consider that most mortgages are set up for a 30-year payback, you’ll probably want to speed it up, especially when you examine just how much the loan costs. Before embarking on such a long-term commitment, it’s imperative you know how to calculate what the price tag is on a new mortgage. Making an intelligent, informed decision about buying a home is easier with this knowledge in hand.

Step 1

Figuring the cost of a new mortgage is simple if you use one of many calculators that are available on the Internet. These online mathematical sources allow you to figure everything from principal and interest to early mortgage payoff. Using online mortgage calculators to figure your monthly payment and overall cost of the loan requires three basic facts — the amount you’re borrowing, the term of the loan, and the interest rate for the mortgage. Enter these figures and you’ll instantly receive the data.

Step 2

Popular spreadsheet software like Microsoft’s Excel and Apple’s Numbers has built-in templates that make the job of figuring a new mortgage easy. With Excel, use the "home essentials standard loan" template and fill in the blanks. You’ll need the amount financed, the interest rate, loan duration and the loan’s start date. Excel’s brain will figure everything else for you. Numbers software works similarly but is not as comprehensive, offering a mortgage calculator that asks for the initial purchase price, down payment, interest rate and length of loan to determine your monthly payment. There are other spreadsheet programs that will work similarly.

Step 3

Sharpen your pencil, or get your calculator, and use this formula to figure the monthly payment for your new 30-year mortgage: Monthly payment equals principal times the result of this equation - [interest times (1 plus interest) to the 360th power] divided by [(1 plus interest) to the 360th power minus 1]. Go one step further by subtracting the total payments, the monthly payment times 360, from the original principal amount, to find out how much interest you’ll pay the bank over the 30-year term of the loan.

Step 4

A quick look at an amortization table reveals the tremendous cost of a 30-year mortgage. For instance, the first year of a 360-month, $100,000 mortgage at 5 percent interest costs you $4,966.49 in interest. Only $1,475.37 of your $6,441.86 in payments that year will go to retire the principal debt. It takes 15 years to reach a point where you’ll pay more toward principal that interest. Most online mortgage calculators give an amortization option.

Step 5

Do yourself, and your wallet, a favor and invest in your home by making extra principal payments aimed at retiring the mortgage debt and the associated interest in a timelier and more economically feasible fashion. Since we’re all good at wasting a little money here and there, why not brown bag lunch twice a week and invest the savings of $100 a month in your home? The $100 applied directly to the principal each month saves you $30,580.25 in interest and reduces the term by of a 30-year mortgage by 8.67 years. Check it out yourself, as most calculators found on the Internet offer the option of determining the impact of making extra principal payments.

Tips

  • Get quotes from at least three mortgage lenders before making a firm commitment to move forward.
  • Consider a 15-year rather than a 30-year mortgage term.

Warning

  • If you plan to obtain your mortgage from a mortgage broker, only do business with a reputable firm.

About the Author

Cheryl Withrow is a writer in Michigan’s untamed Upper Peninsula. Following a teaching career she served alternately as editor of the "Washington County News" and the "Geneva County Reaper," and as associate editor of "Bay Life" magazine. Withrow holds a Bachelor of Science in business with a major in accountancy from Wright State University and a Bachelor of Arts in English from Ohio University.

Photo Credits

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