How to Calculate Your Payments on a Fixed-Rate Mortgage

A fixed-rate mortgage is one where the interest rate will remain the same throughout the life of the loan. Having a monthly fixed-rate mortgage payment can make budgeting and planning much easier, and it can prevent outrageous hikes in the interest rate later. Your fixed-rate mortgage payments will be a mix of both the interest that’s owed and the balance on your account. That empowers you to accrue equity in your home.

If you have a fixed-rate mortgage, calculating your payments can help you determine whether the monthly expense is doable for your budget. If the monthly payments are too high, you may need to consider purchasing a smaller home or finding another mortgage option. If you agree to payments that are too high, you’re more likely to default on the loan and lose the house along with the investment you made up to that point. That’s why it’s so important to calculate your payments prior to signing the paperwork and agreeing to the mortgage.

Mortgage calculators on websites like Bankrate offer you a very simple way to calculate your monthly payments on a fixed-rate mortgage. Since a fixed-rate mortgage simplifies things by maintaining the same interest rate for the life of the loan, these calculations are even easier. To use a basic mortgage calculator, you need to first know the total mortgage amount, the length of your mortgage term and your annual interest rate. Other online calculators can be used and may also serve multiple functions, including being an annual debt service calculator.

Try using a monthly payment formula for an easy way to discern the monthly payment amount. When you have your own independent method of calculation, you never have to worry about a mortgage calculator site closing or having a bug.

Use this monthly payment formula: C = T [r (1 + r)m] / [(1+r)m - 1]

In the above formula, the “C” stands for the monthly payment contributions that you are trying to determine. It is the figure that the entire formula seeks to find.

The “T” stands for the total amount of your mortgage, including the interest rate. You can easily get this figure by calling your loan company or looking at a recent statement. It should typically list the total amount of your mortgage. Be careful to not confuse this figure with the amount you’re paying for the house with closing costs. You would need to factor in interest and your down payment on the home. It’s generally best to refer to the mortgage paperwork to attain an accurate mortgage total.

The “r” stands for the monthly interest rate. If you don’t already know the monthly interest rate you’ll be paying, simply divide your annual interest rate by 12. If you don’t have a calculator on hand, simply search for the term “calculator” on Google, and a calculator will come up at the top of the search results. Enter the annual interest rate, divide it by 12 in the calculator, and you should get the total to enter in the “r” spot of the formula.

The “m” stands for the total number of months of your loan. Multiply the number of years of your mortgage by 12. (So, if you have a 30-year mortgage, you would use the number 360 for “m.” On the other hand, if you only have a 15-year mortgage, you would enter 180 for “m.”) A fixed-rate mortgage formula can also be used anytime you consider refinancing your loan to determine what your new payment would be.

After you have fully filled in the monthly payment formula, solve for "C" by working from the inside out. First, solve the parts of the formula that are in parenthesis and then the parts in the brackets. From there, figure out the large calculation. You’ll find that it gets simpler as you solve each part. The total you end up with should be close to accurate. The final total shouldn’t differ from your actual mortgage payments by more than a dollar.

If mortgage calculators seem too convoluted and formulas are something you wanted to leave behind in algebra class, don’t worry. You can also calculate your mortgage payments with a simple, traditional calculator. Just be sure to use one that allows you to enter exponents, or you will find it difficult to use a regular calculator to determine the monthly payment. Use the information from the formula above to enter the digits into the calculator and calculate your monthly payment amount.

If you calculate your monthly payments but ultimately cannot afford to make the payments, you should not move forward with the mortgage even if you have a large down payment. Before you calculate how much your payments would be on the fixed-rate mortgage you have in mind, you need to know how much you can afford to pay per month.

Realtor.com, the official website for the National Association of Realtors, offers a free mortgage affordability calculator. You can use it to determine how much you can afford to pay before figuring out how to calculate your payments. Enter your location, annual income, monthly debt and down payment into the home affordability calculator. Then, it will show you results to give you a better idea of whether you can afford the mortgage you’re considering. It will also provide the debt-to-income ratio that you’d have in the scenarios you enter into the calculator. It will also suggest whether the proposed mortgage information you entered is quite affordable or whether you will be stretching your budget.

As you seek to calculate the regular payments you need to make on a fixed-rate mortgage, also try to be in the know about how the mortgage will impact your overall financial health. You may opt to play around with different variables to determine what the best mortgage will be for you and how much you should expect to pay each month on your mortgage. For example, if you go to a mortgage calculator, you can enter different hypothetical amounts in the space for the home price, annual interest rate, down payment, loan term, taxes and insurance to determine how different your financial situation can be if you choose different mortgage options.

Also, a mortgage calculator can show you how much money you might be able to save if you wait a few years to buy a home. If you save up for a large down payment, you may be able to take out a much smaller loan and therefore pay significantly less interest. That can save you a lot of money. However, if you will be paying rent during those few years that compares to how much you would otherwise be paying in interest on the mortgage, it may still be worth it to go ahead with your current mortgage plans. Every situation is unique, so taking the time to explore all the projected costs, expenses and benefits can help you move forward with confidence.