How To Calculate Your Monthly Mortgage Payment Given The Principal, Interest Rate, & Loan Period

TL;DR

Learn how to calculate monthly mortgage payments and total interest for a given loan using two different formulas.

Transcript

in this video we're gonna talk about how to calculate the monthly payment of a mortgage so in this example problem Jessica takes out a $300,000 loan at a fixed interest rate of 5% to buy a home the loan is to be repaid in a time period of 30 years Part A calculate Jessica's monthly mortgage payment what is the form of that we could use to get the a... Read More

Key Insights

• ☺️ Monthly mortgage payments can be calculated using two different formulas: P x R x (1+R)^n / (1+R)^(n-1) or P x R / (1 - (1+R)^-n).
• 🍉 Increasing monthly payments or reducing the loan term reduces the total interest paid.
• 😘 Negotiating a lower interest rate can also decrease the total interest paid.
• ✖️ Calculating the total amount to be repaid involves multiplying the monthly payment by the number of payments.
• ❓ The total interest paid is obtained by subtracting the principal from the total amount paid.
• 🤙 Excel offers a function called PMT that can be used to calculate loan payments.

Questions & Answers

Q: How do you calculate the monthly mortgage payment?

By using the formula P x R x (1+R)^n / (1+R)^(n-1) or the formula P x R / (1 - (1+R)^-n), where P is the principal, R is the monthly interest rate, and n is the number of payments.

Q: Can you provide an example calculation?

Sure! Let's say the principal loan amount is $300,000, the annual interest rate is 5%, and the loan is for 30 years (360 payments). Plugging these values into the first formula gives a monthly payment of $1,610.46.

Q: How do you calculate the total amount to be repaid?

Multiply the monthly payment by the number of payments. In our example, $1,610.46 x 360 = $579,765.60.

Q: What is the formula to calculate the total interest paid?

Subtract the principal from the total amount paid. In our example, $579,765.60 - $300,000 = $279,765.60.

Summary & Key Takeaways

• The video explains how to calculate the monthly mortgage payment using the formula: P x R x (1+R)^n / (1+R)^(n-1), where P is the principal loan amount, R is the monthly interest rate, and n is the total number of payments.

• Another formula to calculate the monthly mortgage payment is P x R / (1 - (1+R)^-n), where P, R, and n have the same meaning as in the previous formula.

• To calculate the total amount of money to be repaid, multiply the monthly payment by the number of payments. To find the total interest paid, subtract the principal from the total amount paid.