Mortgage payment calculation formula: what you need to know

To calculate the mortgage payment, you need to know the loan amount, interest rate and loan term. Here's how to do it.

What formula is used to calculate the mortgage payment?

Many people wonder what formula is used to calculate a mortgage payment and what elements need to be taken into account when doing so. This is an important question for those considering taking out a loan to purchase real estate. It is important to understand how much you need to request from the bank and how much the loan will cost in the end. Calculating your mortgage payment requires three key elements: the loan amount, the interest rate, and the loan term. The mathematical formula for calculating the mortgage payment is as follows:

• R=C*[(r*(1+r)^n)/((1+r)^n-1)]

For a more convenient and quick calculation, you can use the online mortgage payment calculator.

How to calculate a mortgage payment using a formula?

To calculate your mortgage payment yourself, you need to collect several important data:

• Loan amount : This is the amount provided by the bank, which usually does not exceed 80% of the value of the property. Banks, as a rule, do not finance more than 80% of the cost of real estate and do not issue loans if the loan payment exceeds 30-35% of the borrower's monthly income.
• Monthly Interest Rate : It can be fixed, variable, variable with CAP, blended or fixed payment. The final interest rate often includes a margin that covers the bank's risks and operating expenses.
• Loan term : expressed in months.

The main types of interest rates include:

• Fixed rate : unchanged for the entire loan term, based on the Eurors indicator at the time of signing the loan agreement.
• Variable rate : changes over time, usually based on the Euribor indicator.
• Variable rate with CAP : has an upper limit on rate changes.
• Mixed rate : a combination of fixed and variable rates, for example, a fixed rate for a certain period, then a variable rate.
• Fixed payment rate : The term of the loan changes, not the amount of the monthly payment.

It is also important to consider:

• TAN (Nominal Annual Rate) : Does not include all additional costs of the loan.
• TAEG (Total Effective Annual Rate) : Includes all costs, representing the total cost of the loan.

Formula for calculating mortgage payment

Using the formula:

• R=C*[(r*(1+r)^n)/((1+r)^n-1)]

Where:

• R is the mortgage payment.
• C is the loan amount.
• r is the monthly interest rate (TAN or TAEG divided by 12).
• n is the total number of payments (loan term in months).

Example: for a loan of 100,000 euros with a TAN of 3% and a term of 20 years (240 months):

• R=100,000*[(0.03/12*(1+0.03/12)^240)/((1+0.03/12)^240-1)]= 554.60 euros

If the loan has a variable interest rate, the calculation must be repeated each time the rate changes. Typically, such changes occur once a month, once every three months, once every six months or once a year. When using a variable rate, the calculation must be updated each time the interest rate changes. Also, if you use TAN instead of TAEG, the final payment amount may be higher due to additional costs charged by the bank.

Additional Tips

When choosing a mortgage, it is important to consider not only the interest rate, but also all associated costs, such as insurance, loan servicing fees and other possible payments. Pay attention to the conditions for early repayment of the loan, which may include penalties or fees. Consider using online tools to compare offers from different banks to find the best deal.

It is also recommended to consult with a financial advisor who will help you assess all possible risks and choose the best loan option depending on your financial situation and goals.