A house payment is a payment on a loan used to buy a house. Loan payments include a payment toward the principal and interest. The principle is the amount of the original loan, and the interest is the fee that the lender charges for providing the loan. You can calculate the payment on a loan from the principle, interest rate and number of payments.
Instructions
1. Derive the monthly payment from the equation P = L[i(1+i)^n]/[(1+i)^n -1]. The payment is P, the principle is L, the interest rate is i and the number of payments to make is n.
2. Convert the interest rate "i" to a decimal fraction. Interest rate is typically given as a percentage value in common use, but the equation in Step 1 will require a decimal value. You can make this conversion by dividing the interest percentage by 100. For example, an interest rate of 7 percent is equal to 7/100 (or 0.07).
3. Convert the interest rate of the compounding period to the interest rate of the payment period. The interest rate on a loan is given as the interest for the compounding period, typically a year; however, loan payments are typically made monthly. To make this conversion, you will need to divide the annual interest rate by 12 to get the monthly interest rate. For example, if the annual interest rate is 7 percent, you will divide 7 by 100 to get the decimal fraction of 0.07 for the annual interest. Divide the annual interest rate of 0.07 by 12 to get a monthly interest rate of 0.07/12, or approximately 0.00583.
4. Determine "n" as the number of payments to make. Typically, the loan period is given in years while the payment period is 1 month. In this case, you would multiply the term of the loan by 12 to get the number of monthly payments. For example, for a 25-year loan, the number of payments "n" is 25 x 12 = 300.
5. Plug the principle, interest rate and the number of payments to make into the formula from Step 1. The value of the payments "P" will be in the same units of currency as the loan amount "L."
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