How to calculate mortgage payments

A mortgage is a type of loan where you surrender a property (such as a title deed) to a creditor as a security of the loan. You will resume the ownership of the property after you finish paying the loan. An example of a mortgage loan is a home loan. You should understand your mortgage well since it helps in making better financial decisions.

Understanding The Loan Details

To calculate and understand your loan well, you need some details, such as the total amount of money you pay monthly (M), the principal amount of the loan (P), the monthly interest rate (most lenders will provide you with annual interest rates (r/12 = R). You should also get the number of times you will pay the loan (the number of years multiplies by 12) = (N).

From the above figures, you can come up with this formula: M = P[R(1+rPR)^N/((1+R)^N)-1)]. As the property buyer, the formula will help you to accurately know the amount of money (per month) you can afford, hence the value of the property (price) you can acquire. It is good to evaluate multiple properties before you decide which one suits you best.

The Need of Calculating Your Mortgage

Financing a big project such as home requires a lot of money, thus you need to make sharp financial decisions. The formula will enable you to set the budget early, before you even think of finding a property. The formula also helps you to avoid being impressed by properties you are not in a financial position to afford in the long run.

Deciding how much you can afford is also very confusing. You should follow the 28/36 percent rule. It states that you should not spend more than 28% of your income (gross) on a mortgage payment and also no more than 36% of your income (gross) on total debt. Before you make your final decision, you should ask for information about the hidden costs of the property.