What Is the Formula for Calculating a Mortgage Payment?
Last Updated Apr 13, 2020 5:10:08 AM ET
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.
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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