When it comes time to calculate a mortgage payment, most of my clients simply ask me what the payment will be, and decide if they are ready to move forward or not. Occasionally, I have clients who want to know the interest rate, term, and loan amount I am basing my figures on so that they can plug that information into a mortgage calculator. But every now and then, I get the customer who actually wants me to work through the math of a mortgage payment.

Now, for a long time I thought these customers were crazy – there are tons of online calculators available and they do all the work for you. But as time went on, I realized that it makes sense to want to understand how this payment which will be with you for the next 30 years is determined. So, to figure out by hand what your mortgage payment will be, you need the following formula:

M=P[i(1+i)^n]/[(1+i)^n-1]

In this formula, M is the mortgage payment, i is the interest rate, and n is the number of monthly payments. So, a 30 year mortgage for $100,000 at 4% would look like this: M = 100,000[.34(1+.04]^360]/[(1+.04)^360-1].

By understanding how to manually calculate a mortgage payment, you can better understand the effect of a higher interest rate or a longer term.

If you have any questions about calculating your mortgage payment, or if you would like some help in determining how much you should plug in for any of these variables, please contact me. And if you have anything to add about calculating a mortgage payment by hand, please leave a comment.