How to Manually Calculate a Mortgage Payment

by Carter McBride ; Updated July 27, 2017
Calculating a mortgage payment may help you decide if you can afford a home.

One of the hardest things about buying a house is being able to afford it. Since most prospective homeowners don't have the full purchase price in hand, taking out a mortgage is the most likely scenario for buying a home. In addition, current homeowners can take out a second mortgage on their home to afford other expenses. Mortgages require the amount of the loan to be paid plus interest on the loan in monthly payments.

Step 1

Gather all the relevant information. You will need the interest rate, the amount borrowed for the mortgage and the period of time you have to pay the mortgage back. For example, a $125,000 mortgage charges 12 percent interest per year. The homebuyer has 30 years to repay the mortgage. The number of payments he must make then is 360 payments: 30 years times 12 (months in a year).

Step 2

Calculate the interest rate per month by dividing the interest rate by 12. In our example, 12 percent divided by 12 equals 1 percent or 0.01.

Step 3

Add 1 to the interest rate per month. Raise the sum to the negative power of the number of payments required on the mortgage. In the example, 1 plus 0.01 equals 1.01, then 1.01 raised to the power of -360 equals 0.027816689.

Step 4

Subtract the number calculated in Step 3 from 1. Label this B. In our example, 1 minus 0.027816689 equals 0.972183311.

Step 5

Multiply the interest rate per month by the mortgage amount. Label this A. In the example, 0.01 times $125,000 equals $1,250.

Step 6

Divide A by B to determine monthly payments on the mortgage. In our example, $1,250 divided by 0.972183311 equals a monthly payment of $1,285.77.

About the Author

Carter McBride started writing in 2007 with CMBA's IP section. He has written for Bureau of National Affairs, Inc and various websites. He received a CALI Award for The Actual Impact of MasterCard's Initial Public Offering in 2008. McBride is an attorney with a Juris Doctor from Case Western Reserve University and a Master of Science in accounting from the University of Connecticut.

Photo Credits