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Mortgage Calculator – Calculate Home Loan Repayments

Jacaranda Team

Jacaranda Team

December 17, 20204 minute read
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If you’re thinking about buying property over a long period, one of the first things you’re going to want to know is how much the repayments are. You see, calculating rebates can be tricky, and that’s why several people opt to get someone involved to help. While that’s not a bad idea, you can do it on your own once you figure out the formula. This article aims to help you learn how to calculate your home loan repayments, so you can now quickly and accurately decide which property is best suited for you.

On this page:

    Know your loan inside and out

    Buying property is a big step, so it’s in your best interest to fully understand your loan repayment terms and if you can make it without defaulting. It would be best if you didn’t rush into anything that might look like a good deal, no matter how tempting it is. If you make a mistake, you could wind up missing payments if the terms are too strict, which could ruin your credit rating. Always ensure you leave a window to let your pocket breathe, and look into having an emergency fund that can tide you over in the worst-case scenario.

    So way before you start trying to add, multiply, and divide, you need to understand your loan inside and out. The kind of questions you should be asking is what type of loan is this? How often do I need to pay back? And what’s the interest rate? It’s essential to have all the answers to these questions because it determines the formula you’re going to use and the numbers you’re going to insert. If you don’t know, you’ll wind up making lots of mistakes even if you’re using a spreadsheet or calculator.

    Understanding the formula

    Now that you’ve familiarized yourself with the terms of your loan, you can move onto the next step. Remember it’s essential you know things like the long term suggestions, principle borrowing mount, the interest rate, and loan link before you get started. If you think about it, calculating a mortgage payment is tricky. That’s because every month you pay into it, the principal amount in the next month reduces, and you end up paying a little less in terms of interest until the payment is complete. However, you pay a little more principle every time, which confuses most people. But we’re here to work you through it.

    Let’s imagine you got approval for a loan of $25,000 at 4% for ten years, and you want to know how much you’ll have to pay back monthly. There’s a standard formula which is:

    Payment = Principle amount / Discount factor

    The principle amount is pretty straight forward, that the initial $25,000 that your lender approved. Discount factor (DF) = {[(1+r) n ]– 1] / [r (1 + r) n]}

    We know it looks scary, but don’t go running for the hills yet; take it slowly.

    n is the number of repayments you would have to make, and using the example above, that’s 12 payments in 10 years, so n = 12 * 10 = 120.

    r is the periodic rate, and you get that by dividing your annual rate by 12; that’s 4% divided by 12 payments in a year, so r = 0.04 * 12 = 0. 0033

    So our Discount factor = 98.9559 = {[(1 + 0.0033) 120] – 1] / [0.0033 (1 + 0.0033)  120]}

    Following that, your monthly payments would be $252.64 ($25,000 / 98.9559)

    Of course, that number would change if you were paying back your loans daily, weekly, or bi-weekly.

    You’re also in luck if your terms involve an interest-only payment; that is, it is independent of your principal amount. The formula for that is more straightforward as it only:

    Payment = Outstanding balance * r (Remember that r is your annual rate divided by the number of payments).

    Use a mortgage calculator

    Of course, if you’re not able to sit down with a pen and calculator to try and work out your repayments, there are alternative options that can quickly get the job done. Still, it’s helpful to have the formula handy if you’re not satisfied with the numbers you’re getting. Most mortgage calculators have other added benefits like telling you how much you can borrow or even how to repay your loan in the shortest time possible.

    However, you still have to go through the first step in this guide, which is to know your loan details. These online websites will often ask you for information like your loan type, repayment type and interest rate, the amount borrowed, the duration, and how frequently you plan to pay. After computing, it’ll give you the results. You can find many such services on the internet for free, but you should be wary of sites that require too many personal details, like your address and so on. It’s also helpful to keep in mind that the answers are mostly estimations and not an exact prediction. The aim is usually to give a rough idea to budget appropriately. But as we said earlier, give your finances room to breathe so you can cover any excess, and if the actual amount is lower, well, good for you. The discrepancies are because some people use a slightly different formula or round up numbers differently. With that in mind, you mustn’t rely on such information solely. It’s in your best interest to talk with a financial expert or broker if you’re unfamiliar with mortgage payments. Of course, this fact also applies to using such calculators to check if you’re eligible for loans.

    To cap off, owning property is a big step, and you need to ensure you’re prepared to make your payments on time. That includes knowing the terms of your loan in-depth, understanding the formula for calculating your mortgage repayment, cross-checking with a loan calculator, and of course, consulting with a financial adviser if need be.


    Copyright © www.jacarandafinance.com.au Jacaranda Finance Pty Ltd ® ABN 53 162 078 195 Australian Credit Licence 456 404, Pawnbroking License Number 4221738. The information on this web-page is general information and does not take into account your objectives, financial situation or needs. Information provided on this website is general in nature and does not constitute financial advice.


    Jacaranda Team
    Jacaranda Team

    Written by Jacaranda Team

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