Understand How to Calculate a Mortgage Step-By-Step

All consumers are able to figure out how to calculate a mortgage, they just need the right tools and the right instruction. Once they know how to calculate their mortgage they will find themselves empowered to make educated decisions regarding the home loan they acquire or negotiate for.

We have this cultural myth that calculating a mortgage is somehow difficult, that figuring out monthly payments, the total cost of your loan, and all sorts of other pertinent bits of data is somehow only possible if you have an advanced mathematical degree, if you are a talking head expert featured on morning talk shows, or if you work as a lender at a bank. Thankfully this cultural myth is just that- a myth. With the right tools and the right step-by-step instructions anyone can calculate a mortgage.

  1. First, find yourself a good mortgage calculator. Is it absolutely essential that you find a mortgage calculator? No. Can you calculate a mortgage on your own using a normal run-of-the-mill calculator? Absolutely. But using a mortgage calculator will save you a lot of time and prevent you from having to manually work through a lot of equations that stretch out a few too many variables for the average person’s tastes.
  2. Now, determine how much you would like to borrow - e.g. the cost of the house, minus your down payment.  This is the principal balance, which isn’t anything fancy, it’s just how much money you still owe to your lender. If you are looking at a refinance, you’ll find your principle listed on every monthly statement you receive and you can probably find it even easier if you have online access to your mortgage information.
  3. Next you want to get your interest rate. Some home loan calculators let you input your interest rate as a percentage, others want you to put it in as a decimal. Converting an interest rate to a decimal is easy. Just move the decimal over two places to the left. So if you have an interest rate of 4% that would be .04 in decimal form. An interest rate of 14% (yikes!) would convert to .14 as a decimal.
  4. You might also need to convert your interest rate from an annual rate to a monthly rate. If you are excellent at algebra and have the correct calculations, his is fairly easy- but you need to understand the calculations.  To convert your rate, the calculation you would follow is:  Effective rate for period = (1 + annual rate)(1 / # of periods)  - 1.   To calculate a monthly rate, you would put in 12 for the # of periods.  For a quarterly rate, you would plub in 4, etc.  Once again, most good mortgage calculators will let you just take your APR and plug it in, but it’s a good idea to know how to do these conversions in case you run into a slightly fussier calculator than you expect.
  5. It’s also a good idea to know how many more payments you have left on the life of your loan as some calculators need this information.  If it is a new loan, you can try plugging in various terms - 30 years, 20 years, 15 years - in order to compare what your monthly payment would look like.  If you are looking to refinance, you'll need to look at how many months you have left on the loan.  However, be aware that banks will only refinance in increments of 5 years.
  6. Last, but not least, it’s a good idea to figure out how much you will pay in taxes and insurance for your property, either annually or monthly.  This is easy if you are refinancing.  However, if you are purchasing a new home, you'll need to do a little digging on this, and maybe get some estimates from your insurance agent.  Keep in mind that while this may not technically count towards your loan payments (ie: what you actually owe the bank or your private lender) but it’s a good idea to remember these expenses to get a full look at what you’re going to be paying for your property.
  7. Now all you need to do is plug these numbers into your home mortgage calculator and you’ll be able to calculate a mortgage, all on your own, without experts, lenders or an advanced degree! Simple, right?


If you are visiting our site, you already were seeking out a home mortgage calculator in which to understand all of the various elements that make up your home loan.  We can help you identify and ask pertinent questions so that you move through this process with your eyes wide open.

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