What is a mortgage?
A mortgage is a loan secured by property, usually real estate property. Lenders define it as the money borrowed to pay for real estate. Essentially, the lender helps the buyer pay the seller of a house, and the buyer agrees to repay the money borrowed over, usually over 15 or 30 years.
What are the key components of a mortgage?
Loan amount: the amount borrowed from a lender or bank.
Down payment: the upfront payment of the purchase, usually a percentage of the total price.
Loan term: the period over which the loan must be fully repaid. The most common durations are 30 years and 15 years. Typically, the shorter the loan term, the lower the interest rate.
Interest rate: the rate of interest charged by a mortgage lender. It can be fixed (otherwise known as a fixed-rate mortgage, or FRM) or adjustable (otherwise known as an adjustable-rate mortgage, or ARM). The calculator only for use for fixed-rate mortgages.
What does a mortgage calculator do?
A mortgage calculator helps estimate the monthly payment due along with other financial costs associated with mortgages.
What is the equation to calculate a mortgage?
M = P[r(1+r)^n/((1+r)^n)-1)]
M = the total monthly mortgage payment.
P = the principal loan amount.
r = your monthly interest rate. Lenders provide you an annual rate so you’ll need to divide that figure by 12 (the number of months in a year) to get the monthly rate. If your interest rate is 5%, your monthly rate would be 0.004167 (0.05/12=0.004167)
n = number of payments over the loan’s lifetime. Multiply the number of years in your loan term by 12 (the number of months in a year) to get the number of payments for your loan. For example, a 30-year fixed mortgage would have 360 payments (30x12=360)