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Determining an Annual Mortgage Payment that You Can Afford

Are you thinking about buying a house? If so, you will likely have to shop around for a mortgage loan. Lenders offer mortgage loans at different terms of agreements. These loans are secured loans that mean that the lender can seize your property in case of a default. That is why it is important to consider carefully when selecting a mortgage loan.

Before applying for a mortgage loan, you must make certain that you can afford the mortgage payments. As such, it’s important to find out how to calculate the monthly mortgage payment, which is a topic that we will cover here.

Calculating Mortgage Payments

A number of factors determine the mortgage amount that you will have to pay every month. The first thing that you must realize is that the loan installment amount depends on the rate at which you were able to obtain the mortgage loan, and the maturity period of the loan.

The payment schedule of a person that has taken a 10-year loan of $50,000 at 3% interest rate that is compounded annually is shown in the table below.

YearPrincipalPaymentRemainingInterestNet Payment
150,0005,00045,0001,35046,350
245,0005,00040,0001,20041,200
340,0005,00035,0001,05036,050
435,0005,00030,00090030,900
530,0005,00025,00075025,750
625,0005,00020,00060020,600
720,0005,00015,00045015,450
815,0005,00010,00030010,300
910,0005,0005,0001505,150
105,0005,000000

You can see in the above table that the interest rate and the net payment amount goes on decreasing with time. At the first year, the interest rate comes is $1,350, the second year it is $1,200, the third year it is $900, and so on until it becomes zero at the end of the tenth year. The total payment that is made by the individual as mortgage payment is $56,750 of which $6,750 is interest payments.

This shows that the monthly mortgage amount depends on a number of factors: rate of interest, loan payment period, and the principal amount. You can calculate the mortgage installment payment once you know the respective values. Keep in mind that the frequency at which the rate of interest is compounded determines the interest payments. 

Are There Any Interest Free Mortgages Available?

A number of companies offer interest free mortgages. Companies such as Citibank and HSBC as well as private institutions including the California based Lariba provide interest-free mortgages for residents in the US. Instead of paying the interest payment, the individual has to pay a premium over the initial price.

The amount of monthly mortgage payments is calculated in a similar manner to traditional loans. Instead of the interest rate, the profit margin of the lender is used to calculate the annual mortgage payment.

Disclaimer: The article is intended for informational purposes only. You should not make any financial decision based solely on the information contained in this article and without consulting with a financial expert first.

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