How to Manually Calculate Mortgage

You can manually calculate a mortgage payment, calculate the interest paid on a mortgage so far or determine how much you'll pay over the life of the loan using a few relatively simple formulas. You can also use an online loan calculator tool or a mortgage payment formula in Excel or another spreadsheet tool to do the math for you. Some of this information, especially your payment amount, should also be available from your mortgage lender on your statements or online banking portal.

When you buy property, you'll often take out a mortgage loan to pay for some of the cost. You will give the lender a right to auction off or take possession of the property if you don't pay back the money and usually commit to making a monthly payment over a certain loan term, such as 30 or 40 years.

Each payment will include a mix of paying back loan principal, or the amount you initially borrowed, and interest, the extra percentage you pay to the lender in exchange for being able to take out the loan. As you continue to make payments, the percentage of each payment going toward principal will rise. As less principal is owed, less interest will be charged.

There may be other items paid through your mortgage payments, including homeowner's insurance premiums, property tax and fees paid to a condo or homeowner's association.

If you were somehow able to take out a no-interest mortgage, calculating your monthly payment would be simple. You could just divide your mortgage principal by the number of months for which the mortgage is valid. But since you must pay interest to make lending you money worthwhile from the lender's point of view, things are a bit more complicated. For a fixed rate mortgage, you can use the formula:

P * r * (1 + r)ⁿ / [(1 + r)ⁿ – 1]

Where r is your monthly interest rate, P is the loan principal, and n is the number of months you have to pay back the loan. Note that you must compute your monthly interest rate by dividing your annual interest rate by 12, since there are 12 months in a year, if you don't have it handy. For example, if your annual interest rate is 6 percent, your monthly interest rate will be 0.5 percent, or 0.005.

Remember that those other costs, such as insurance and tax, may boost some or all of your payments.

Once you have your monthly mortgage payment, it's easy to compute the total amount you will pay back over the life of your loan. Simply multiply the monthly payment by the total number of months you will have to pay back the loan. For example, if you have a 30-year mortgage, and a $1,000 monthly payment this will be 360 months, for a total payment of $360,000.

To find out how much of this will be due to interest, subtract your total loan principal from the total principal and interest payment. By definition, the rest is interest.

To find out how much interest is involved in a particular payment, multiply the outstanding principal at that point by your monthly interest rate. Remember that the amount of interest included in each monthly payment is not constant.

You can find online mortgage calculators to determine all these values on numerous financial news and information sites, as well as through some lenders. If you prefer not to type your information into a website, you can also find templates for Microsoft Excel and other spreadsheets to do the job for you.

If you have an adjustable rate mortgage, the interest rate will fluctuate over the life of the loan, so these formulas won't apply. In fact, you can't predict with complete accuracy how much you will pay over the life of the loan or how much future monthly payments will be after interest rate adjustments, since it's very difficult to predict how interest rates will change.