How Is a Mortgage Payment Calculated?
by Mark Kennan
Few people who live in the Bay Area can afford a house without a mortgage.
The basic formula first adds 1 to the monthly interest rate as a decimal. Second, the result is raised to the power of the negative number of payments over the life of the mortgage. Next, the result is subtracted from 1. Then, divide the monthly interest rate as a decimal by the result. Finally, multiply that result by the amount borrowed. For example, say your mortgage has a monthly interest rate as a decimal of 0.007, 360 monthly payments and a balance of $250,000. Add 1 to 0.007 to get 1.007. Second, raise 1.007 to the negative 360th power to get 0.081169076. Next, subtract 0.081169076 from 1 to get
0.918830924. Then, divide 0.011 by 0.918830924 to get 0.007618377. Last, multiply 0.007618377 by $250,000 to find your monthly mortgage payment is $1,904.59.
Calculating the Interest Rate
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