## Mortgage Repayment Calculator

If you are mathematically minded, you may wonder the formula that a **mortgage repayment calculator** uses for giving you the monthly payments and where it comes from.

First of all, it’s good to note that a fixed interest rate home loan is much more predictable, and thus manageable, than an adjustable rate one. But it also costs more in terms of monthly payments right from the beginning. Its net advantage, though, is that it offers a pretty good downside protection.

# Why Use A Mortgage Repayment Calculator?

Let’s say you borrow $100,000 for your new house, at an annual interest rate of 5% and promise to return both the principal and the interest within 30 years, assuming you don’t get any tax rebates. In this case, what would your monthly payments be?

Using a mortgage repayment calculator helps to make calculating your mortgage simple. Taking it slowly, let’s say you repay the full amount in the last day of the 30th year. For each year you would have to pay interest $100.000 times .05, which is $5,000. For the entire loan term, that would amount to 30 times $5000, which equals to $150,000. Add this to the principal and you will repay your bank a grand total of $250,000. That’s two times and a half the principal for living rent free in a house for 30 years and paying for it at the end of this period.

## How A Mortgage Repayment Calculator Works

If you decide you want to make your mortgage payments, after all, the total owned each month would be the current principal plus the interest rate associated to that principal minus your monthly payment. From this you should clearly see that, in order to decrease the total owed, your monthly payment needs to exceed the monthly interest rate. In our example, the monthly interest rate is the yearly one divided by 12, namely 0.05/12, which is .004167. If we time that with the initial principal, we reach a monthly interest of $417 (this figure is rounded up). This is the threshold at which your debt will stay the same. Below this, you will be paying too little, and your debt will increase. Obviously, anything above this will reduce your debt. Higher monthly payments lead to faster debt repayment, less interest paid and, of course, less income for the bank. Because of this, generally, banks like it if things drag on somewhat. Using a mortgage repayment calculator helps to know where you stand when making these mortgage payments.

Suppose you can afford $10,000 yearly payments. That means your monthly payments will be 12 times less, which is about $834 (by comparison, this is double the break-even amount). At the end of the first year, you will owe $100,000 plus $5,000 interest, minus $10,000, which is $95,000. This is your new principal, with which you start your second year. If you apply the 5% to this amount you will get $4,750, which is the total interest you owe for the second year. As you can see, in the context of $834 monthly payments, your yearly interest has decreased because your principal has decreased.

### Mortgage Repayment Calculator Formula

Simply put, the mortgage repayment calculator is a tool that uses this progressive decrease in yearly principal and interest. Its formula establishes a relation between four variables, namely the monthly interest (M), the principal (P), the number of monthly payments (n) and the monthly interest rate (r). M equals P times a factor. The factor is the ratio between r and 1 – ((1+r) at power -n).

Below is a Mortgage Repayment Calculator for your use.