How To Calculate Monthly Mortgage Payment In Excel

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How To Calculate Monthly Mortgage Payment In Excel – This is section 2.3 (v. 1.0) of the book “Functions for Personal Finance”, Using Microsoft Excel. For details on this (including licensing), click here.

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How To Calculate Monthly Mortgage Payment In Excel

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In this section, we continue to develop the Personal Budget Workbook. Notable items left off the budget sheet are payments you might make on a car or house. You’ll also want to set and track savings goals. This section shows Excel functions used to calculate lease payments for a car, calculate mortgage payments for a house, and project future savings based on regular contributions and average rates of return. This section also explores Excel’s scenario capabilities after completing the Personal Budget Workbook.

One of the functions we will add to the personal budget workbook is the PMT function. This function calculates the required payments for a loan or lease. However, before performing this function, it is important to cover some basic concepts in loans and leases.

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Loan Contract Agreement where money is lent to a lender and repaid within a specified period. A contractual agreement whereby a lender lends money and repays it within a certain period of time. The amount lent to the lender is called the principal. of debt The borrower must pay the principal and interest on the loan. When you borrow money to buy a house, the loan used to buy the house or property is called a loan. . This is because the property purchased acts as collateral to ensure repayment. In other words, the bank can foreclose on your home if you fail to make loan payments. As shown in Table 2.5 “Key Terms of Loans and Leases”, there are several key terms associated with loans and leases.

The amount of money paid when buying the house. If you put 20% down, you are paying 20% ​​of the home’s cost in cash and borrowing the rest from the lender.

Figure 2.29 “Example of an Amortization Schedule” shows an example of an amortization schedule, a schedule of payments for a loan divided into interest and principal. By law, the lender must provide the borrower with a repayment schedule. for a loan The lender is required by law to provide the borrower with a repayment schedule when offering the loan agreement. If you borrow \$100,000 from a lender and agree to pay it back over 10 years at an interest rate of 5%, the chart in the figure shows how the loan repayments would work. You will notice that every time you make a payment, you are paying the bank’s interest charges and part of the loan. Each year the amount of interest paid to the bank decreases and the amount used to repay the principal increases. This is because the bank charges you interest on the unpaid amount. When you pay off the principal, the interest rate is applied to a lower amount, which lowers your interest expenses. Finally, the figure shows that the sum of the values ​​in the Interest Payments column is \$29,505. How much would it cost to borrow that money in 10 years? In fact, borrowing money is not free. It is important to note that to simplify this example, the payments were calculated annually. However, most loan payments are made monthly.

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A lease agreement in which the lessee uses an asset, such as a car or equipment, and agrees to make regular payments to the owner or lessor. The lessee is usually required to return the leased property to the lessor at the end of the lease. This is a contract in which you, the lessee, use an asset such as a car or equipment, and agree to make regular payments to the owner or lessor. When you lease a car, the manufacturer or leasing company owns the vehicle and you agree to make regular payments over a set period of time. The amount you pay depends on the price of the car, the terms of the lease agreement, and the expected residual value of the car at the end of the lease. Calculating lease payments is similar to calculating loan payments. However, when you rent a car, you only pay the price of the used car. For example, let’s say you leased a car worth \$25,000. The lease is for 4 years, with an interest rate of 5%. The salvage value of the car is \$10,000. This means that the car will lose \$15,000 of its value in 4 years. Another way of saying this is that the car will be valued at \$15,000. The lease will be structured to amortize that \$15,000. However, interest expense will be based on the purchase price of \$25,000. We’ll look at the performance of renting a car and buying a home in the next section.

If you own a home, your mortgage payment is a major component of your household budget. If you’re planning to buy a home, a clear understanding of your monthly payments is critical to maintaining solid financial health. In Excel, mortgage payments are easily calculated using the PMT (Payment) function. This function is more complex than the statistical functions covered in Section 2.2 “Statistical Functions”. With statistical functions, you only need to add cells or a selected range of cells between the function’s parentheses. With the PMT function, you must properly define the function’s argument array to produce reliable output. Table 2.6 “PMT Function Arguments” lists the PMT function arguments. It is helpful to review the loan and lease terms in Table 2.5 “Key Terms for Loans and Leases” before reviewing the PMT function arguments.

This is the interest rate the lender charges the loan. Interest rates are usually expressed in annual terms, so you should divide that rate by 12 if you’re calculating monthly payments.

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. This is the term of the loan, which is the time you owe the bank. It’s usually quoted in years, so you’ll need to multiply the years by 12 if you’re calculating monthly payments.

. It is the principal of the loan or the amount of money borrowed. When defining this argument, a minus sign must precede the cell location or value. For leases, this argument is used for the value of the item being leased.

. The parentheses around the argument indicate that it does not always need to be defined. It is used if there is an amount that will be paid at the end of the loan terms. It is also used for the residual value of the lease. If it is not defined, Excel will assume it is null.

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This argument can be defined as 1 or 0. Number 1 is used if payments are made at the beginning of each period. A 0 is used if payments are made at the end of each period. The argument is in parentheses because it is not necessary to specify whether payment is made at the end of each period. Excel assumes this argument is 0 if it is not defined.

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