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Mortgage Payment Formula:
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The mortgage payment formula calculates the fixed monthly payment required to fully amortize a loan over its term. For rental properties, this helps investors determine if the property's rental income can cover the mortgage payments.
The calculator uses the standard mortgage formula:
Where:
Explanation: The formula calculates the fixed payment needed to pay off the loan completely by the end of the term, including both principal and interest.
Details: For rental property investors, calculating mortgage payments is essential to determine cash flow. The rental income should ideally cover the mortgage payment plus other expenses to be profitable.
Tips: Enter the loan amount in dollars, annual interest rate as a percentage (e.g., 3.5 for 3.5%), and total number of monthly payments (e.g., 360 for a 30-year loan).
Q1: How does this differ from a primary residence mortgage?
A: The calculation is the same, but rental properties often have higher interest rates and require larger down payments.
Q2: What's a good ratio of rental income to mortgage payment?
A: Many investors aim for the 1% rule - monthly rent should be at least 1% of the purchase price. The 50% rule suggests expenses (including mortgage) should be ≤50% of rent.
Q3: Should I include taxes and insurance?
A: This calculator shows principal and interest only. For a complete picture, add property taxes, insurance, and maintenance costs (typically 1-2% of property value annually).
Q4: How does loan term affect payments?
A: Shorter terms (15 vs 30 years) have higher monthly payments but much less total interest paid over the life of the loan.
Q5: What about adjustable rate mortgages?
A: This calculator assumes a fixed rate. ARMs require more complex calculations as rates change over time.