The calculation of the mortgage payment is not a very simple operation to carry out, because this varies according to the loan that has been decided to subscribe, but in the time of technology even this operation is feasible, it is enough to know the parameters necessary to calculate it easily : fixed or variable rate, duration of the loan, interest rate, monthly payment etc.
How are the “French” mortgage payments broken down?
The “French” plan is the amortization plan most used by credit institutions for the granting of the loan and consists in allowing you to pay installments that are always the same amount, from the first to the last. The composition of the installments is logical as it is, divided between the sum to be returned and the interests that are added. The first installment of the loan, or rather the first installments, are mostly composed of interest and only a small part of the allocated capital, vice versa over time will be the opposite and that is in the installment will be less and less interest reported and more the capital. However, these two operations do not change the total of the installment, but the system of calculation of the same.
The Italian plan as it is composed
The Italian amortization plan differs from the “French” one precisely in the way of settling the installments, in fact in this plan it is preferable to first repay a large sum of the capital and then that of the interest and the loan will be shorter. It should? It depends on your financial situation, because if it is true that the mortgage lasts less it is also true that the first installments will be very high, so the choice is completely subjective.
The formula for the calculation of the installment
As mentioned at the beginning you can calculate the amount of your installment if you know all the necessary parameters and there is a mathematical formula to get to the amount, which I’m going to explain in detail and with the characters that you have to use. First of all you have to keep in mind the capital that you intend to be funded by the bank, which you will use with the letter C. Beyond this you must take into account the annual rate that is declared in decimals. For the rate you will use the letter T in the formula. With the letter R instead are shown the installments you pay in a year, which may be 12 in the case of monthly payment ; 4 if you decide to make a quarterly payment; 3 if the payment is instead quarterly and 2 if the payment of the installments will be half-yearly. Finally, letter A expresses the duration of the mortgage years.
By entering all the right parameters you can have the calculation of the mortgage payment with the following formula:
C x (1 + T / R) (R x A) T / R
(1 + T / R) (R x A) -1
This type of formula is only feasible for fixed rate mortgages, because the interest rate is always the same. Can the variable rate loan be calculated? Having had a detailed guide on the calculation of the installment of the fixed rate mortgage, you may be wondering if it is possible to calculate also that with a variable rate. Unfortunately, it is not possible to calculate it at the time of signing the loan because you will not know with certainty what will be the final sum that you will have to return to the bank as the rate will vary depending on the financial markets. Choosing this type of loan can be convenient but also very risky, because if interest rates rise, you may find yourself paying higher and higher installments.
In order to cope with these risks, however, the same credit institutions have met clients, providing various methods of variable rate mortgages. One of these is the mixed rate mortgage, which allows you to decide to switch from the fixed rate to the variable rate with the loan already active, but you will have to choose this period when signing the contract. Or you can choose the known mortgage with the name of capped rate, which allows you to set the maximum percentage of interest over which you can never go even in case of serious increases in the financial markets.
However, there is a way to calculate the installment if you have decided to take out a loan at a variable rate, but this calculation will be indicative only, because from the moment you decide to make it at the time you pay the installment, the rate may however vary and therefore the amount also.