How to Calculate Fixed-Rate Mortgage Payments
When financing a property a common question that investors have is: how to calculate fixed-rate mortgage payments? It is important for any buyer to fully understand how various rates in the agreement are computed. This allows him or her to recognize the right payment plan that fits his or her financial situation and to make better financial decisions. To calculate a mortgage payment, you’ll need to know the following:
Principal amount, interest rate, loan term, market value, mortgage insurance, property taxes, your monthly income, and other relevant fees.
Principal, or loan amount, is the home’s purchase price less your down payment.
Interest rate, usually charged as an annual percentage, is what the creditor charges you for the loan.
Loan Term is the number of years you’ll agree to pay the loan in full.
Property Taxes should also be put into consideration to avoid any issues with the government and unnecessary fees.
Monthly Income is important as mortgage payments will affect your after-expense, after-tax take home net income.
Other Fees may include additional taxes or business liability fees if you’re operating as an LLC or otherwise.
While you can always use an online mortgage calculator or check the Web for available mortgage payment tables covering different interest rates and loan terms, it is also important that you know how to do this manually, especially if you’re in the real estate business. Fixed-rate mortgages have the same payment and interest rate for the life of the loan, regardless of any affecting economic factors. Thus, you will only be needing a few numbers to compute your monthly payment.
To calculate, use this formula: P = L[c (1 + c)n] / [(1+c)n – 1].
Looks confusing? Not so much.
P = Monthly Payment
C = Monthly Interest Rate, which can be computed by dividing your annual interest rate by 12 monthly payments.
N = the total number of months in the term.
L = is the total amount you borrowed from the lender, or the home value.
Knowing this equation and understanding the intuition behind the math will help you better budget and calculate fixed-rate mortgage payments.