Mortgages

Disclaimer:
The information provided is for general informational. I am not a licensed financial advisor, and the content shared here should not be construed as financial advice. Any financial decisions should be made in consultation with a qualified professional. I recommend verifying any financial information and consulting with an expert to ensure it aligns with your personal circumstances.

I am working towards the goal of home ownership. Part of that journey has been filling in the blank spots for my understanding of finance and mortages (which have been too many!).

Resources

Mortgage Calculator https://docs.google.com/spreadsheets/d/1j2UIWAOpBNc09MrJkCnikQsMHNQ8TNeVQbIc1vt56Q0/ I came up with a mortgage calculator to help me more realistically understand what is required to take on a mortgage alongside other expenses.

Investopedia: Amortization https://www.investopedia.com/terms/a/amortization.asp

YouTube: Amortization Loan Formula https://www.youtube.com/watch?v=lkNJvsy0qU8

Amortization

Amortized loan

When regularly payments on a debt results in the initial debt being paid off over time.

Interest-only loan

When regular payments on a debt only account for interest.

In the case of interest-only loans, separate payments are necessary to ensure the initial debt is paid off.

Calculating Interest

Here is the formula for calculating the periodic payment on an amortized loan.

P[r/n]
Principal [ rate / number of periods ]

Example for a $300,000 loan with a 6% interest rate

300,000 [ 0.06 / 12 ] = $1,500

Calculating Amortized Payments

Formula for calculating amortized payments:

P[r/n] / [ 1 - [1 + r/n]^-nt ]
Interest / [ 1 - [ 1 + interest / periods ]^-periods * total periods ]

Example for $300,000 loan with a 6% interest rate amortized over 30 years

Monthly Interest

300,000 [ 0.06 / 12 ] = $1,500

Periods

12 [months / year]

Total Periods

12 * 30 = 360

Putting it together:

$1,500 / ( 1 - [ 1 + (0.06 / 12) ]^-12*30 )
$1,500 / ( 1 - [ 1 + 0.005 ]^-360 )
$1,500 / ( 1 - 1.005^-360 )

Monthly Payment

= $1,798.6515754583