Lesson Fixed Rate Mortgage Payment

Fixed Rate Mortgage Payment Calculation

In FRMs, the interest rate over the entire term of the <mortgage is fixed, and repayments are made in equal installments in every period (usually monthly).

The fixed monthly payment can be calculated as follows:

Let:

P = principal amount borrowed
r = annual interest rate, compounded monthly
N = term of the loan in years
n = number of monthly payments = N*12
EMI = fixed monthly payment
Then:

EMI = (P*r) * (1+r/12)^n/((1+r/12)^n-1)

For example, consider Principal = $100000, interest rate = 7%, and time period = 30 years = 360 months. The formula would then be

EMI = (100000*0.07/12) * (1+0.07/12)^360/((1+0.07/12)^360-1)

EMI = (100000*0.07/12) * (1+0.07/12)^360/((1+0.07/12)^360-1)

This would give the value of EMI as $665.3.
Also see: Corporate Finance: Calculate Equal Monthly Installments (EMI)