Basics of mortgage calculation – Essential steps for you to follow
Doing proper calculations before taking out a mortgage loan is extremely essential. All the calculations will help you to get an idea about how much you can afford to borrow as a home loan. There are interest rates that your lender will charge, processing fees and some other loan related expenses that you’ve to manage as part of your mortgage loan. There are numerous mortgage calculators that you can use to calculate a mortgage and realize exactly how much you can borrow to buy a property.
Is it that tough to calculate mortgage?
Well, it’s not that tough to calculate your mortgage. You can easily do that by following some easy steps. Quite obviously you need to follow those steps carefully to get the needed results. Here is how you can calculate your monthly mortgage payment easily:
1. Determine the principal amount: Principal is the amount that you’ve actually planned to borrow. The principal amount doesn’t include the interest rate. You need to put the principal amount in mortgage calculator during evaluation.
2. Find out the interest rate: You must also calculate the monthly interest rate separately. It’s not advisable to use the annual interest rate for calculation. For more accuracy you should divide the annual interest rate by 12 to get the monthly amount.
3. Calculate the exact loan tenure: The time period for the mortgage loan is also very much important for the calculations. Convert the whole time period into months. Suppose you’ve planned to opt for 15-year loan. The time period for you will be 15X12 = 180 months then. In this way you’ll be able to find out the probable monthly payments.
4. Put each information into the equation: After accumulating all the needed information you must use them to complete the calculation. The equation that you must use to calculate the monthly mortgage payment is : M = P [i(1 + i)^n] / [(1 + i)^n - 1]. Here “M” is the monthly amount, “n” is the months required for loan payment, “P” is the principal and “i” is the interest rate. This formula will help you to calculate your monthly mortgage amount properly.
What you need to do for calculating the total cost of mortgage?
If you want to calculate the overall cost along with the monthly payments, then here are the steps that you should follow:
1. Find a suitable mortgage calculator: You can easily find mortgage calculators on various financial websites. You can choose any calculator according to your requirement.
2. Provide the essential information: Once you’re done with the selection of a mortgage calculator, evaluate all of your mortgage related terms and interests. Put all the loan related information into the calculator to go ahead with the calculation.
3. Try different calculators to compare the results: You may try different mortgage calculators and compare the results to find out exactly how much you should pay off per month to get out of the loan as soon as possible.
Just follow the steps mentioned above to calculate your mortgage accurately. This will ultimately help you to get the right mortgage loan.