# Mortgage Calculator: A Requisite for Mortgage Payments

Sep 23, 2015 · 4 min read

A mortgage is a home loan, purchased from a bank, credit union, or other financial institution. It is used by a lender as a security for a debt. In other words, the mortgage is a security for the loan that the lender makes to the borrower. You should get a mortgage to determine monthly repayments and review your financial status. So, the mortgage calculator will help you to do the same. This online tool used by consumers to determine monthly repayments, and by mortgage providers to know the financial suitability of a home loan applicant.

## Variables used in a mortgage calculation

Loan principal, balance, compound interest rate, number of payments per year, total number of payments, and the regular payment amount is variables used in a mortgage calculation. It is to be noted, more complex calculators can take into account other costs such as insurance, or local and state taxes to calculate your mortgage. There are many free online mortgage calculators available for mortgage calculations.

## Formula to calculate monthly payment

The borrower has to pay a certain fixed amount for a fixed rate mortgage every month to ensure that the loans is paid off in full with interest at the end of its term. The monthly payment c depends upon P = the amount borrowed, known as principal, N = the number of monthly payments i.e. loan terms, and r = the monthly interest rate, expressed as a decimal, not a percentage. So, the monthly percentage rate will be the yearly percentage rate divided by 12.

You can calculate your monthly payment by putting the value of P, N, and r into the formula mentioned above. You can also use online mortgage calculator to calculate your monthly payment by putting the value of variables used in a mortgage calculation (as described above) and then click the “Calculate” tab to get the monthly payment for the mortgage.

## How it Works?

A mortgage is a loan secured by a property i.e. a real estate property. To calculate your mortgage monthly payment, you can follow the steps mentioned below:-
1. Firstly, you have to define the principal (P= the amount of loan). This will be the amount you borrow from your lender or bank. The loan amount you borrow correlates to your affordability or household income.

2. Secondly, you have to define the Interest rate (r). The interest rate can be fixed or adjustable. For ARMs (Adjustable Rate Mortgage), the interest rate is generally fixed for a period of time. You have to convert an interest rate into a decimal fraction instead of a percentage. For instance, if the interest rate is 5 %, use the value 5/100 or 0.05.
3. The Interest rate is generally given as an annual rate, while the interest on a mortgage loan is compounded monthly. So, you should convert annual interest rate to the monthly rate. Divide the annual interest rate by 12 to get the monthly interest rate. For instance, if the annual interest rate is 5 percent, divide the decimal fraction 0.05 by 12 to get the monthly interest rate which will be 0.00416.

4. Now, you have to define the N as the total number of monthly payments required to pay the debt. Generally, loan period is given in years while the payments are made monthly. So, you have to multiply the term of the loan by 12 to get the number of monthly payments to make. For example, if N= 15 years, you have to use 15×12 = 180 for the value n into the formula.
5. Finally, you have to put the values of P, N, and r into the equation or formula to get the monthly mortgage payment.

“So, the online mortgage calculator is the best tool to calculate your monthly mortgage payment. You will be able to get the fixed amount you have to pay monthly to pay off your debt.”

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