bad credit mortgage rate

Home  »  financial  »  The Mathematics of Finance – Calculate your mortgage payment

During the first two parts of this series, we discussed how compound interest is calculated and the effects of different composition of your net return. Here, we examine how that dreaded dreaded of all payments is calculated. What is it? – Yes, you got it, that death pledge of a debt – the mortgage. You’ll want to read this.

If you do not already know, mortgage loans comes from two French words meaning “death pledge.” When you consider all the seizures that occur after that time under-bust out, the etymology of the word sounds rather true to life. In this article we will discuss how to calculate your mortgage payments based on the term and interest rate. You must understand compound interest and the nominal interest rate, so if you do not master these two subjects of my articles “The Mathematics of Finance” Parts I & II, you can go read those before you try to fight against it.

A mortgage is actually a form of an annuity: a contract whereby one party in exchange for a lump sum of money, promises to make a series of payments over a period of time. When a bank gives you a mortgage, the bank gives you money to purchase your home, in return for your series of payments, which are usually paid monthly over a period of thirty years. With the knowledge of the first two items, you can easily calculate the payment.

Suppose that “Frequent Compounding United States Bank, your friendly local lending institution, grants you a mortgage of $ 100,000 for thirty years at 6% interest. The way the figures from the Bank of compounding on the mortgage is to use the monthly nominal rate. Thus, at 6%, the nominal rate is 6% / 12 or 0005. The way we get the monthly payment is to use the formula P indicates that the monthly payment of the annuity factor (called an) is equal to the amount borrowed A. Using 6% to $ 100,000, this formula results in an = P * A, or P * = $ 100,000.

Solving for P we have P = A / year. All we need to know now is what is equal to. To find one, we introduce another factor, called the discount factor, and is designated by c. V is equal to the inverse of one plus the nominal interest rates. Mathematically v = 1 / (1 + i) i = .005. The annuity factor is expressed as follows: an = (1 – v ^ n) / i, where n is the number of months.

Take the example of a mortgage by $ 100,000 thirty years at 6% and calculate our P. Payment Note that 30 years is 30 * 12 or 360 months. V = 1 / (1 + i) 1/1.005. And v is equal to 0.99502, to four decimal places. We can now find our factor of an annuity. Therefore, a = (1 – v ^ n) / I, or (1 – 99 502 ^ 360) / .005. When we enter into this concept in our simulator we get a = 166.85. We can now calculate P P = $ 100,000 / 166.85, or P = $ 599.35.

Yes, that’s all there is to fear that the calculation of all payments dreaded month. Just remember. This promise of death is not a guarantee of death, unless you make it one. Do not.

Check out my site cool math problem of the week. You can also order my books in mathematics by Cool Math Ebooks