How to Compute a Fixed-Rate Mortgage
- 1). Determine how much you need to borrow. Do not forget to take closing costs and homeowner's insurance into consideration when you calculate the amount you have to borrow.
- 2). Determine the term of the loan. Most fixed rate mortgages are either 15-year or 30-year term. You will pay a higher interest rate on longer terms, but you will have smaller monthly payments, so it may allow you to borrow a larger amount.
- 3). Determine the interest rate you will pay. This rate is set by the lender and is affected by your credit score, the term of the loan, and prevailing interest rates.
- 4). Divide your interest rate by 12 to find the monthly interest rate. For example, if your annual rate is 8 percent, your monthly interest rate would be 0.75 percent.
- 5). Use the following formula to calculate your monthly payment, where L is the loan amount, R is the monthly interest rate, and N is the number of months of the loan term.
Monthly payment = L * ( ( R * (1+R) ^ N ) / ( (1+R) ^ (N-1) )
For example, a mortgage of $200,000 at 8 percent interest over 30 years would give you a monthly payment of $1,511.25.
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