Money Saving Expert Mortgage Compare

Mortgage Payment Formula:

\[ PMT = P \times \frac{r}{12} \times \frac{(1 + \frac{r}{12})^{12 \times t}}{(1 + \frac{r}{12})^{12 \times t} - 1} \]

Monthly Payment (PMT):

Unit Converter ▲

Unit Converter ▼

From:	To:

1. What is the Mortgage Payment Formula?

The mortgage payment formula calculates the fixed monthly payment required to repay a loan over a specified term, including both principal and interest components. This formula is essential for comparing different mortgage options and planning your finances.

2. How Does the Calculator Work?

The calculator uses the mortgage payment formula:

\[ PMT = P \times \frac{r}{12} \times \frac{(1 + \frac{r}{12})^{12 \times t}}{(1 + \frac{r}{12})^{12 \times t} - 1} \]

Where:

\( PMT \) — Monthly payment (GBP)
\( P \) — Loan principal (GBP)
\( r \) — Annual interest rate (decimal)
\( t \) — Loan term in years

Explanation: The formula calculates the fixed monthly payment needed to fully amortize a loan over the specified term, accounting for compound interest.

3. Importance of Mortgage Calculation

Details: Accurate mortgage calculation helps borrowers understand their financial commitments, compare different loan offers, and plan their budget effectively. It's crucial for making informed decisions about one of the largest financial commitments most people make.

4. Using the Calculator

Tips: Enter the loan amount in GBP, annual interest rate as a percentage (e.g., 3.5 for 3.5%), and loan term in years. All values must be positive numbers with the term typically between 1-50 years.

5. Frequently Asked Questions (FAQ)

Q1: What is included in the monthly payment?
A: This calculation includes principal and interest only. Your actual mortgage payment may also include property taxes, insurance, and other escrow items.

Q2: How does interest rate affect the payment?
A: Higher interest rates significantly increase monthly payments. Even a 0.5% difference can substantially impact your monthly budget over the loan term.

Q3: What is the advantage of a shorter loan term?
A: Shorter terms typically have lower interest rates and result in less total interest paid, though monthly payments are higher.

Q4: Can I make extra payments to reduce the term?
A: Many mortgages allow extra payments which can reduce the total interest paid and shorten the loan term, but check your specific mortgage terms.

Q5: How accurate is this calculator?
A: This provides a good estimate for fixed-rate mortgages. For variable-rate or more complex mortgage products, consult with a mortgage advisor.