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This short TUTORIAL, will demonstrate the use of  Monthly Mortgage Payment  in order to determine how much mortgage payment will be.

In order to calculate the monthly mortgage payment we need several pieces of information, we need to know the amount borrowed, we need to know the loan term, and we need to know the annual interest rate on the loan.

For demonstration purposes let us assume that the property was being purchased for $300,000 and we are going to be making a down payment of say 20% which is $60,000. That would leave a balance of $240,000 and let’s assume the loan term is for 30 years which seems to be the most common loan term. As far as annual interest, we are going take an arbitrary rate of interest of 6%.

We are also going to add in the annual taxes and the annual home owners insurance on the property because most mortgages require that the homeowner make a payment every month toward those expenses. To make the numbers work for us let us just assume the annual real estate taxes are $2,400 and that is dollar, not in percentage. And then we will assume that the annual homeowners insurance policy is $1,200. Now once we have put in all the information, we will then click the calculate button and that would tell us that our total monthly mortgage payment is $1,738.92. And that payment is made up of principal and interest on the mortgage, and the total payment of principal and interest will not change throughout the term of the loan. And in addition to that, there is a portion of the payment which is real estate taxes and a portion of the payment which is homeowner’s insurance. Now, to see exactly how this breakdown works, we will click on the show more information button, and what it will now give us is an actual breakdown of the total payment.

For the first month, the payment portion that would be applied towards interest is $1,200; $238.92 will be applied toward principal, reducing the principal; $200.00 a month will go towards the taxes which is our $2,400 here divided by 12; and then $100.00 a month which is our homeowner insurance of $1,200 divided by 12 months will go toward insurance.

The principal and interest portion of this payment remains fixed throughout the 30 year term of the loan because this is a fixed rate mortgage. In the first month $1,200.00 will be applied toward interest and $238.92 would be applied toward the principal of the loan. And now our principal balance at the end of the first month is our original balance of $240,000 less $238.92 leaving a balance on the loan $239,761.08.

Now every month, when the payment is made, the interest portion of the payment, as you can see here, drops down a little bit and the principal portion of the payment goes up a little bit. The reason for that is because the amount of the payment is a fixed amount. It is the total of $1,438.92 that remains fixed.

Because the principal balance drops every month, less and less of the payment would be applied toward interest and, more and more of the payment will be applied to our principal. At the end of the first year we can see that after the 12 payments our new principal balance is $237,052.77. In other words, we have dropped our principal by almost $3,000 at the end of the first year. And that is the total of these monthly payments that were applied to our principal balance of $240,000.00.

If you want to know at any point in time how much you owe on a home, all you have to do is click to that point in time. Let’s assume you would like to know what you owe at the end of 5 years. At year 5 of 30, your ending principal balance due will be $223,330.47. So, if you are looking to pay off your mortgage at that point in time, that is your remaining principal balance.

As you can see that the calculator will go out for the entire term of loan, you have the ability to click this forward toward 30 years, and you could see at the end of the 30th year which is 360th payment, the portion of this payment that will be applied to the interest is $7.16 the remaining $1,431 would be applied to principal and at the end of that point in time, you would now owe zero on your mortgage. You would have your mortgage completely paid off.

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