## How to Calculate Mortgage Payment by Hand
Calculating your mortgage payment by hand is a straightforward process that can help you plan for your monthly housing expenses. Here’s a step-by-step guide:
### 1. Determine the Loan Amount
The loan amount is the principal amount you’re borrowing to purchase the home. This amount is usually determined when you’re pre-approved for a mortgage.
### 2. Calculate the Interest Rate
The interest rate is the percentage of the loan amount you’re charged for borrowing the money. Interest rates fluctuate based on market conditions, your credit score, and the type of mortgage you choose.
### 3. Determine the Loan Term
The loan term is the amount of time it will take you to repay the loan in full. A common loan term for mortgages is 30 years, but there are also 15-year and 20-year loans available.
### 4. Convert the Interest Rate to a Monthly Rate
To calculate your monthly mortgage payment, you need to convert the annual interest rate to a monthly rate. Divide the annual rate by 12. For example, if your annual interest rate is 5%, your monthly rate would be 5% / 12 = 0.0042.
### 5. Calculate the Principal and Interest Payment
The principal and interest payment is the portion of your monthly payment that goes towards reducing the loan balance and paying interest on the loan.
To calculate the principal and interest payment, use the following formula:
“`
P&I = P * (r * (1 + r)^n) / ((1 + r)^n – 1)
“`
where:
* P is the loan amount
* r is the monthly interest rate
* n is the number of monthly payments
Let’s say your loan amount is $200,000, your monthly interest rate is 0.0042, and your loan term is 360 months (30 years).
“`
P&I = 200000 * (0.0042 * (1 + 0.0042)^360) / ((1 + 0.0042)^360 – 1)
P&I = $1,062.13
“`
### 6. Calculate the Mortgage Insurance Premium (if applicable)
If you’re putting down less than 20% on your down payment, you may be required to pay mortgage insurance. This is an additional monthly fee that protects the lender in case you default on your loan.
The amount of your mortgage insurance premium will vary depending on the loan amount, the down payment, and your credit score.
### 7. Calculate the Total Monthly Payment
To calculate your total monthly mortgage payment, add the principal and interest payment and the mortgage insurance premium (if applicable).
“`
Total Monthly Payment = Principal and Interest Payment + Mortgage Insurance Premium
“`
In our example, if the monthly mortgage insurance premium is $100, the total monthly payment would be:
“`
Total Monthly Payment = $1,062.13 + $100 = $1,162.13
“`
## Example Calculations
Let’s take a look at a few examples to illustrate the calculation process:
### Example 1
* Loan Amount: $250,000
* Interest Rate: 4%
* Loan Term: 30 years (360 months)
Monthly Interest Rate: 4% / 12 = 0.0033
Principal and Interest Payment: $1,193.40
### Example 2
* Loan Amount: $300,000
* Interest Rate: 5%
* Loan Term: 15 years (180 months)
Monthly Interest Rate: 5% / 12 = 0.0042
Principal and Interest Payment: $2,180.24
### Example 3
* Loan Amount: $150,000
* Interest Rate: 3%
* Loan Term: 20 years (240 months)
Monthly Interest Rate: 3% / 12 = 0.0025
Principal and Interest Payment: $789.04
## Conclusion
Calculating your mortgage payment by hand is a simple process that can help you better understand your monthly housing costs. By following the steps outlined above, you can accurately calculate your payment and ensure that you’re prepared for your monthly home expenses.