Here’s How to Calculate Your Mortgage

Rohan Mathew

Updated on:

When considering purchasing a new home or refinancing your current one, calculating your mortgage is imperative.  It helps to determine the interest rate you can get, the payment you can expect, the money you can save and a host of other things.

Monthly Payment Configuration

There are two ways you can calculate your mortgage payment.  You can use a simple equation and calculate it by hand or you can use a mortgage payment calculator, like one found on

There are several variables that go into the equation:

  • Homeowners Insurance – In most cases, you will have to have homeowners insurance to protect a lender’s investment.  An escrow account is beneficial in this case because the overall premium splits into regular payments.  Even without one, you have to include this as an expense.
  • Interest Rate – Because your monthly payment doesn’t include closing costs, you want to look at the base of an interest rate rather than the annual percentage rate.
  • Loan Amount – For a new home purchase, look at the price and subtract your down payment.  For refinancing, calculate the expected balance after closing.
  • Mortgage Insurance – For most down payments less than 20%, mortgage insurance protects the lender in case of default.  The down payment or equity amount along with your credit score will be the main determiners of this rate.  Occupancy and loan type will also factor into this. 
  • Property Taxes – Property taxes are often part of a mortgage payment.  The more accurate you can estimate this, the better understanding you’ll get in regards to costs.  Escrow account aside, these are part of the cost of homeownership.
  • Term – The length of time to pay off your loan is the “term.”  Longer terms usually equate to smaller payments but more interest while shorter terms have larger payments but less interest.
  • HOA Fees – Although not an important part of a mortgage, it’s important to factor in these fees because they impact what you are eligible for in a new home or refinancing.

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Mortgage Math Equation

Here’s the basic equation for calculating a mortgage payment:

M = P [ I (1 + I) ^ N ] / [ (1 + I) ^ N – 1]

M = Monthly payment, this is the number you’re calculating for

P = Principal, or loan balance owed

I = Interest rate, divide this by 12 for the monthly interest rate

N = Number of payments

Mortgage Calculators

Knowing how much you will spend gives an idea of monthly costs or of determining if it’s worth refinancing.  If you’re not a math whiz, don’t worry.  That’s what mortgage calculators online are for.  Even if you can perform the equation with flying colors, it’s always good to use a calculator to check your math.

These include the most important aspects of the calculation, like taxes, interest rate and insurance, to give you an estimated monthly payment.  You input the numbers and details about the loan to calculate your estimated payment.

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