Money Saving Expert Mortgage Repayment Calc

Mortgage Repayment Formula:

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

Monthly Payment (PMT):

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1. What is the Mortgage Repayment Formula?

The mortgage repayment 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 understanding mortgage affordability and planning.

2. How Does the Calculator Work?

The calculator uses the mortgage repayment formula:

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

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 is crucial for financial planning, budgeting, and determining affordability when purchasing property or refinancing existing loans.

4. Using the Calculator

Tips: Enter loan principal in GBP, annual interest rate as a decimal (e.g., 0.05 for 5%), and loan term in years. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What is the difference between interest rate and APR?
A: The interest rate is the cost of borrowing the principal, while APR includes additional fees and costs, providing a more comprehensive cost comparison.

Q2: How does loan term affect monthly payments?
A: Longer loan terms result in lower monthly payments but higher total interest costs over the life of the loan.

Q3: Can I make extra payments to reduce my mortgage?
A: Many mortgages allow extra payments which can reduce the total interest paid and shorten the loan term, but check for any prepayment penalties.

Q4: What is loan amortization?
A: Amortization is the process of spreading loan payments over time, where early payments consist mostly of interest, and later payments consist mostly of principal.

Q5: How often should I review my mortgage?
A: It's recommended to review your mortgage annually or when interest rates change significantly to consider refinancing options.