How Is A Repayment Mortgage Calculated ?
How Is A Repayment Mortgage Calculated.
When a person decides to take a mortgage, it is one of the biggest financial decisions the person will ever make. The person will end up making payments on a monthly basis to the lender for the next 20 or 30 years depending on the term of the loan.
That is why it is important for a person to know how is a repayment mortgage calculated. Usually when you take a repayment mortgage, the interest is actually compound interest where the interest is charged on the principal amount and also on the interest that has accrued.
Therefore, calculating repayment mortgage is a little complicated as the borrower is making monthly payments on the mortgage even while the interest is growing. So, basically if you want to know how much you owe the lender at any period of time,
you would have to use the following formula:
Amount owe = amount + (amount X interest rate) - amount paid
If you want to calculate what will be the payment you will have to make on a monthly basis on the mortgage, you can use the following formula:
Monthly Payment = A X ( i X (1 + i)n ) / ( (1 + i)n - 1)
In the above mentioned formula A stands for the total amount you owe the lender; i stands for interest rate that is charged on a monthly basis; and n stands for the number of payments you have already made.
Although the calculation can be a little tedious, it will give you an idea how a repayment mortgage is calculated, and how much you would have to pay each month during the term of the mortgage.Source: www.rocketswag.com