Since a mortgage principal gradually reduces are you make the monthly payments, the interest accrued reduces as you make payments. This make is so that calculating equal payments of the life of the loan a bit difficult. A brute force method would be to just calculate every payment for the life of the loan and make sure the payment amount results in a 0 payment at the end. In contrast, one can just also use a pre-calculated formula for this.
How’s it going everybody this is vida bush today i’m going to show you how to calculate the mortgage payment based on the loan terms suggestions principle borrowing amount the interest rate and the loan link calculating a mortgage payment is kind of tricky if you just think about it because every single month when you pay into it the principal amount reduces so
You end up paying a little bit less interest every single time and at the same time you pay a little bit more principal harder to calculate the monthly payment and you want equal monthly payments to throughout the whole term of your loan then that gets a little tricky how the heck do you do it you actually write out a spreadsheet and just do it line by line for
360 lines there’s actually a formula for this initially right here i’ll share a spreadsheet down in the video description below where it’ll actually calculate it line by line and it would also give you the monthly payment based on this equation and you can see that they’re actually the same thing if you just look at this equation there might be a little bit hard
To decipher so my purpose here is to just explain to you how this works so you can actually look at the equation and plug in the right numbers yourself for example let’s say you have a $300,000 loan you have a 4% apr you have a 30-year fixed-rate loan now the interest on a mortgage payment actually does not compound every single day or continuously it compounds
Every single month so once you borrowed a loan they calculate how much interest you earn one month later and then they add it to your principal then they take out your payment which includes the interest and a little bit of the principal the thing to keep in mind here is that 4% apr is 4% over one year in order to get the monthly interest that you have to pay you
Divide that by 12 because there’s 12 months in a year otherwise you don’t want to pay 4% every single month right so if you have 200k you don’t want to pay $8,000 every single month in terms of interest so you divide this down by 12 so r in this equation is actually the interest rate the big r divided by 12 now because you have a 30-year mortgage you’re actually
Going to compound this 30 times 12 times and here 30 times 12 is 360 so we can plug all this in and i’ll actually calculate your monthly equal payments over the life of the loan so p is the 200 k and then you multiply it by little r which is 4% divided by 12 so it’s really point zero 4 divided by 12 it’s not 4 divided by 12 because 4 is a percentage that’s why
You use point o 4 and then all of this over 1 minus 1 divided by 1 minus r r here is 0.04 divided by 12 and then all of this could an exponent of n which is 30 times 12 or which is 360 when you work out this equation in some calculator or something then it will give you the proper amount where they actually got this equation is a little bit complex because there’s
Like a mathematical proof here so i hope this equation is good enough for you and not that you need a mathematical proof if you want to look deeper into it and just kind of play around with maybe prepayments and stuff i did make a spreadsheet you can go and download it in the video description below or through my dropbox and you can grab that spreadsheet and then
You can change the principal amount of your loan change their apr that you get change to the how many year mortgage that you did you end up getting then you can calculate your actual monthly payment one thing i want to quickly mention is that whenever you refinance if let’s say you had a 30 year loan and you were paying for several years already and then all of
A sudden you refinance to the same exact interest rate and yet it’s 30 years again you essentially extend it the length of your loan because you essentially extend it for two extra years that is why if you refinance with the same exact term your mortgage payment would go a little bit lower because you’re just kind of dragging things out a little bit longer so
I hope this helps you calculate your own equal monthly payment on a mortgage in the spreadsheet it will also show you accumulated interest payments that you paid and also accumulated principal payments this is usually an eye-opener because if you look at actually how much interest you pay even at 4% throughout a 30-year loan you actually pay as much interest in
As the principal amount so let’s say $200,000 is the principal that you paid in by the time you end up paying the loan in full you pay another $200,000 of interest this is only if you drag it out for 30 years so a lot of people would try to pay early so that they would reduce their interest they pay on the mortgage you don’t forget to give me a like on this video
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Transcribed from video
How to Calculate Mortgage Payments | BeatTheBush By BeatTheBush
