How to Calculate Repayments on a Mortgage

Determine how much a mortgage costs before signing on the dotted line.

Determine how much a mortgage costs before signing on the dotted line.

If you are new to the mortgage game, it’s a good idea to understand how to figure repaying the loan. Mortgages come with a variety of terms and repayment options, from 15 to 30 years duration and biweekly or monthly payments. Choosing which mortgage is best for your financial situation begins with understanding the mortgage loan repayment process and the cost of doing business with financial institutions that handle home loans.

Step 1

Using one of the many mortgage calculators found online is the easiest way to calculate repayments. All you need to know is the amount you plan to borrow, how long you intend to use the money or term of the loan, and the interest rate the bank quoted. Enter these three items, and you’ll instantly receive feedback that includes the principal and interest payment. Some online calculators offer options that include variables such as adding taxes and insurance obligations and additional principal payments.

Step 2

Entering numbers in a spreadsheet program is another way to quickly figure your monthly obligation. Industry standard Excel offers a loan template that asks for the amount you are financing, the rate of interest and the duration of the loan in years, as well as the date you’ll start making payments. This program then figures your monthly payments, the number of payments, the yearly principal and interest, finance charges and the total cost of the loan. As a bonus, this particular template provides an amortization table.

Step 3

Employing a personal finance software program, such as Quicken, or any standard accounting software, suchas Intuit QuickBooks, to figure mortgage loan repayments is another quick and easy way to attack this task. Like other software programs in this genre, the template asks for specific figures; you enter them, and it does the rest, giving you monthly payments, interest over the life of loan and, in some versions, the impact of extra principal payments on the loan term and the amount of interest paid.

Step 4

If you’re a glutton for punishment, you can sit down with a pencil and paper or a calculator and figure mortgage loan repayments by using this standard algebraic formula, M = P [i (1 + i) n] / [(1 + i) n - 1]. In this equation, M is the monthly payment, P is the principal amount, i is the interest and n is the total months you contracted to repay the loan, 180 for 15 years, 360 for 30 years. With this method, you’ll arrive at your monthly payment, although you can go one step further and multiply the month payment by the loan term and subtract that figure from the initial principal amount to arrive at the amount of interest charged and paid over the length of the loan.

Tips

  • Explore the option of a 15-year mortgage as opposed to a 30-year one.
  • Don't sign anything until you know exactly how much your mortgage will cost in the long term.
  • To reduce the cost of your mortgage, consider making extra principal payments on a regular basis.

Warning

  • If you are using a mortgage broker, be sure to investigate his background.

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.

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