Calculating mortgage costs for yourself is actually much easier than it ever has been. Because of the prevalence of the Internet, you now have access that was previously only available to the financial elite. Chief among these tools is the online mortgage calculator that will allow you to break down the complex math of a mortgage into very digestible chunks.
Online Mortgage Calculators: The Easy Route
First of all, you must have an idea of what type of real estate that you want. You will need to understand the types of loans that are available for residential versus commercial properties. It will also help your calculations if you obtain your credit report ahead of time. You will be able to fill in the approximate interest rate with a great deal more accuracy if you know exactly what type of interest rate that banks are willing to give you.
Once you have all of your initial information ready, you will be prepared to enter all the variables into the mortgage calculator so that it can help you determine the monthly cost of your new real estate project. You have a choice of going to more basic mortgage calculators for initial estimates. These calculators do not take into account all of the aftermarket costs that you will have to take on as a homeowner. These costs include furnishing the home, getting the proper insurance for the area and dealing with the local zoning ordinances if you are trying to open a piece of commercial real estate.
Once you have your real estate prospects narrowed down, you can choose a mortgage calculator that will take into account all of these different variables. With this information, you will be able to have a deep conversation with a loaning entity. Of course, your final mortgage costs are only the loan that a banker will give you. In order to truly calculate your mortgage cost, you must also gain a market perspective on the rates that banks are charging for lenders like you. You can do this by using a comparison website that will clue you into the going market rates for people who have your credit and business history.
Calculating Mortgage Yourself: A Complex Formula
If you don’t have access to an online mortgage calculator or wish to calculate basic mortgage payments for yourself, you can do so by using the Equated Monthly Installment (or EMI) formula:
A = P * [r((1+r)^n)/((1+r)^n)-1)]
Having access to an Excel spreadsheet makes calculating this number much easier. To calculate your basic mortgage payments, or "A" for "amortization payment" in the above formula, open a new Excel document and follow these steps:
- The cell A1 in your Excel spreadsheet will represent "P" from the formula. "P" stands for "principal," or the amount that your loan will be from your lender. Let’s say that your loan is $100,000. In cell A1, enter: 100,000.
- Cell B1 will represent "r" in the formula. This letter stands for the "percentage rate" on your monthly loan. Let’s say that your Annual Percentage Rate is 5%. To find the monthly percentage rate, you would divide 5 by 100 and then the resulting number by 12. Excel calculates this automatically. In cell B1, enter: =5/100/12.
- Cell C1 will represent "n" in the formula. This letter stands for the "number of monthly payments" you will have to pay. Let’s say that your loan is for 30 years. To find the number of monthly payments, multiply 30 by 12 (the number of months in one year). Excel calculates this automatically. In cell C1, enter =30*12.
- Finally, to calculate the amount your payments will be, you would use the EMI formula. Excel will calculate this amount automatically for you from your previously entered cells. In an empty cell, A4 for example, enter the following information: =A1*((B1*((1+B1)^C1))/(((1+B1)^C1)-1)). After you hit “enter,” the resulting number will be the amount of your monthly mortgage payments. Using our examples, the number should be $536.82.
Practice setting up your Excel spreadsheet using our numbers to make sure all of the formulas are entered correctly. You can then enter your specific numbers for the letters "P," "r," and "n."