What is the formula for calculating a mortgage payment?


Quick Answer

The formula for calculating a monthly mortgage payment on a fixed-rate loan is: P = L[c(1 + c)^n]/[(1 + c)^n - 1]. The formula can be used to help potential home owners determine how much of a monthly payment towards a home they can afford.

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Full Answer

Before using the formula, it is important to understand what each variable means:

P= payment

L= loan amount

C= interest. To calculate the monthly interest, take the annual rate and divide it by 12. For example, if the annual rate is 3.5 percent, 0.035/12 = .003.

N= number of mortgage payments. If considering a 30-year mortgage, 12 payments a year times 30 years equals 360 total payments.

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