Mortgage calculator is a simple tool that helps you estimate the cost of your mortgage. Thinking about buying your first property? Wondering whether you can afford it? After you put in just a few digits our mortgage calculator will tell you what your monthly payment and total payments will be. Be advised that the calculator provides you with just an illustration and does not include all the details and costs the banks charge when giving a loan. To know in detail how to calculate mortgage payment check out the mortgage payment formula section below.
How to calculate mortgage payment
In order to understand it you need to familiarize yourself with some basic terms:
- Principal. This is simply the amount you want to borrow from the bank. It will depend on two variables: the price of the property and the down payment.
- Down payment. Very important when applying for mortgage. This is the amount of money you already have and want to use to pay for the property. Down payment usually is the main obstacle in getting a mortgage. The times when it was possible to apply for a mortgage covering 100% or 120% of property's value are long gone. The required amount differs depending on institution and of course, country. In the U.S. for example, down payments vary from 3,5% (FHA loans) to 20-25% of the purchase price. But that's not all. Down payment sum also influences the interest rate. The bigger sum you can put down - the lower the rate.
- Annual interest rate. This in one of the most important factors you need to take into account when choosing a mortgage. Even though you will have to repay your mortgage in monthly rates, the interest rate is calculated annually. Each monthly rate consists of capital and interest. In the first years you will mostly repay interest and less capital. The balance changes as you get nearer to the end of your mortgage term.
- Loan term. This one's easy - it is the period in which you need to repay your whole loan. You take a mortgage loan for a number of years but you will be doing payments on a monthly basis. Loan terms vary depending on the bank and mortgage type (fixed rate mortgage have shorter terms than variable rate). Usually one can take a loan for a couple up to 20 or even 30 years. Loan term influences mortgage conditions. The longer the term the less you need to pay monthly but advised that eventually you will pay more (it will take you longer to repay the principal, so the interest will be higher).
Now that you know the basics we can get to our calculation.
- First you need to put in the principal - in our mortgage calculator the field is simply called "amount". Remember, in this field you fill only the amount you want to borrow (deposit excluded).
- Enter your loan term.
- Fill in the interest rate. If you need help figuring our what your interest rate is, you can use our interest calculator.
- Now you can see what your monthly payment will be and what you will pay in total.
- Need to send this data to anyone? Just press the "e-mail" button.
- If you want to know in detail how much principal and interest you will repay each month - press the "show extra information" button.
Remember that this is just an estimation. When taking a mortgage you need to think about other costs which the banks charge themselves or require. This is particularly important in case of long term mortgages combined with low down payment. These are some of the more common charges:
- Insurance. No one will give you a loan if you don't insure your newly purchased property against loses from fire, flooding, etc. The bank may also require that you buy a pay private mortgage insurance in case you will be unable to repay your loan (usually when the down payment is lower than 20%). You will have to buy property insurance during the whole loan period.
- Additional products. Credit cards, personal accounts etc. Some banks offer better terms in return for your buying additional products. Usually you will need to use them throughout the whole term of your loan.
- Taxes. This is not an expense directly related to a mortgage, however, you need to remember that owning a property is invariably associated with paying property taxes. In some countries (like U.S.) if you have a low down payment the lender will set up an escrow account to collect any additional expenses, which will be included in your monthly payment.
Mortgage payment formula
If you would like to know how to calculate mortgage payment on your own, the equation is:
- MP = monthly payment
- P = principal
- r = monthly interest rate**
- n = number of months you will have to repay your loan
**To calculate your monthly interest rate simply divide the annual interest rate by 12.
Let's do an example calculation. To do that we need to know: the principal amount, monthly interest rate, loan period/number of payments. You can find this information in your mortgage loan agreement. For our purpose, we will assume following numbers:
- our principal (P) equals 100 000 EUR
- our loan period is 20 years - that is 240 months, therefore "n" = 240
- the annual interest rate amounts to 5%, this divided by 12 equals 0,004 (0,05/12) and this is our "r"
Now, we can get on with the calculation:
To make it easier, we will add 1 to the "r"
In the next step we have to raise the "(1+r)" (in our example 1,004) to the power of "n" (in our example 240). It is best to use a calculator (put in the value to be raised, than press the xy button and enter the "n" value, press "=") or an excel sheet (use the POWER function: =power(number to be raised,power). The number in our case is: 2,607. Now our equation would look like this:
Let's simplify again and multiply the "r" times the result of raising to power (the top value) and subtract "1" from the result of raising to power on the bottom:
All that is left to do now is to divide the numerator by the denominator...
...and there you go: your monthly payment is 649,03. If you want to know what the total sum of all your payments will amount to, just multiply your monthly payment (MP) by the number of months you will pay your loan (n). In our example it would be:
When you know what your total payments will be, you can also calculate how much you will pay the bank for loaning you money. Just subtract your principal from your total payments. In our case the costs of our loan would amount to 55 767,2 EUR.
You can also forget about all this long counting and use our mortgage calculator.
Fixed vs. variable rate mortgage
While choosing a mortgage there are more things to consider than interest rate and fees. You also need to decide what type of mortgage you want. There are of course many variations but the main two types are:
- Fixed rate - the interest rate will stay the same throughout the whole mortgage term.
- Variable rate - the interest rate will change (usually, it is linked to the national bank's base rate or the reference interest rate on the inter bank market).
A peace of mind is the biggest advantage of the fixed rate mortgage. You can be sure that your rate will stay the same and plan your expenses with more accuracy. Keep in mind however, that fixed rates are usually a bit higher than variable ones. And, if the rates fall, you won't benefit from it.
The advantages of variable rate mortgages lie in its flexibility - when the base rate falls, your interest falls as well, if you want to overpay and get out early, you can. Ironically flexibility is also their main disadvantage - if the base rate goes up, so does your interest, thus it is more difficult to plan your expenses and you need to remember to have some extra money should the rate go up.
Balloon payment mortgage
Balloon payment mortgage is a special kind of mortgage where you are left with a large payment at the end of the loan. This means that the mortgage does not fully amortize over its lifespan. Balloon payment is always higher than monthly payments. . Balloon mortgages can have fixed or variable rates. Due to high risk for small owners balloon loans are more common in commercial real estate. An average homeowner could find it difficult to repay the balance due at loan's maturity. However, there are ways to overcome this difficulty. Some borrowers simply plan to sell their house before the balloon payment is due, others plan to refinance their loan when the balloon payment is due. If you decide to do this, the lender will convert your remaining balance into a traditional fully amortized loan. There are balloon mortgages which refinance the remaining balance automatically - they are called "two-step" mortgages. If you are considering a balloon loan, check our balloon payment calculator to help you estimate how much it will cost you.