How To Calculate Mortgage Payment

Mortgage is the term used when a property is used as a collateral in return for the loan amount. This property is pledged with the lender, so that in case of a default, he can legally sell the property to recover his loss. While the financial institutions and the lenders calculate mortgage payment, knowing how to do so is good so that you can verify the amount calculated.

Mortgage payments are installments to be paid to the lender on monthly basis over a set period of time. With a few simple formulas, you can calculate mortgage payment yourself.  When you go through the process yourself, you know the amount that you have to pay and principal and the amount to be paid as interest each month.

Some financial institutions and lenders have an amortization schedule, which shows in detail the amount to be paid as principal and interest for a certain amount of loan. You can also see the outstanding balance. Some institutions calculate mortgage payment manually and even if there is an excel sheet for the calculation, the formula remains the same.

To know how to make the calculations, you must know the components of an installment. One installment is equal to the total of a portion of the principal amount and the interest on the loan.  You should also know the precise total loan amount borrowed, the time for which the loan has been made and the rate of interest being charged on the loan.

When you know all these things, you can calculate mortgage payment of your loan using a simple formula.

Interest amount = Principal amount x current rate of interest (%) x number of years/100

This is the formula to calculate the total interest to be paid. When you know the total interest, you can add it to the principal and reach the figure that you owe the lender. To know your monthly installments, you have to divide the total amount with the total number of installments in which you have agreed to pay off the loan.

Some financial institutions calculate mortgage payment on a reducing rate of interest. In such cases, the rate of interest payable will reduce with the reduction in the principal amount.

There are many financial institutions, which also provide excel sheet on their websites so that you can calculate mortgage payment on your loan and arrive at the monthly installments. By knowing how much you have to pay each month, you can be ready to make the payment on time.