How to Calculate a Mortgage or Loan Payment.
A Step-by-Step Tutorial
Tutorial 1 - Overview of the Ultimate Financial Calculator
Calculate payment amount for a mortgage or conventional loan with regularly scheduled payment periods. The Ultimate Financial Calculator (UFC) is the most flexible of all the financial calculators on this site (Fig. 1). This guide is the first of twenty-five tutorials that will teach you how to get the most from this calculator. We recommend that all users work through this tutorial first.
Initially, there may seem to be an excessive number of steps required to solve a simple problem. Actually, that's not the case. Many steps described are not required to setup a calculation. We go into extra detail in this one example to introduce you to (1) the options that are available; and (2) to confirm that they are set the way we expect them to be. Otherwise you may get results other than those shown.
- Confirm settings are set for a conventional loan:
- There are many "Calculation Options". If you are not getting the results you expect, most likely the problem is due to the way one of these options are set. You should make particular note of "Rounding Options" and "Interest Options".
- In the header section, for "Schedule Type" select "Loan".
- For "Calculate Method" select "Normal". Fig. 2
- Set "Rounding" to "Adjust last amount to reach '0' balance"
- Most loan and withdrawal schedules need some adjustment to the final cash flow amount. If the last cash flow is not rounded (adjusted), the balance will usually not work out to be exactly zero. The "Open Balance" option leaves the balance unadjusted so you can see the rounding "error" or so you can enter individual amounts and track a "running balance." The other two options adjust the cash flow so that the final balance is zero.
- Click "Settings" on the button bar
- Select "Rounding Options" from the drop down menu Fig. 3
- Make sure the setting is accepted by clicking "Save change" to close Fig. 4
- Confirm/Set "360 / 365 Days" options
- This setting impacts odd days' interest calculations as well as exact day simple interest and daily compounding.
- It has no impact on interest calculations when compounding is not based on a day unit and there are no odd days in the interest period
- Click "Settings" on the button bar
- Select "360 / 365" from the drop down menu Fig. 5
- Select "360 Days Per Year" Fig. 6
- Confirm/Set "Interest Options"
- The time between the loan date and the first payment date may not be the same as the regular payment frequency (often monthly). Frequently the time is longer. For example, the loan originates on February 25th, and the first payment is due on April 1st when the normal payment frequency is monthly. These interest options impact the interest calculation for initial, irregular length periods. If you are not getting the results you expect, check these settings. Fig. 7 & Fig. 8
- Clear prior inputs by clicking the [New] button on the calculator's button bar.
- Clear does not empty the grid area completely. An example row will remain.
- Set initial values for your loan in the header area.
- Both interest rate and compounding can be changed on later dates (see tutorial #4)
- Enter the "Nominal Annual Rate". All rates are entered as a percentage (not as decimal equivalents). That is, for a 4.5% enter "4.5". Do not type in the percent sign. Fig. 9
- Select a "Compounding" frequency. "Monthly" compounding is most typically used.
- Enter loan details into the grid. These are called "cash flows".
- Each row in the table may represent one or more cash flows as indicated by the number in the "# Periods" column
- A cash flow maybe a series of loans, payments or xtra payments (extra payments) when "Schedule Type" is a "Loan"
- A row will represent only one type of cash flow as indicated in the "Series" column
- Click on the first row of the cash flow area. For the first row, set the "Series" to "Loan". ("Series" describe the cash flow type)
- Type [Tab] to move to the "Date" column. This date, called the loan date, is the date the monies become available. It is sometimes known as the origination date. If you are borrowing money and the bank gives you the money on March, 1 2023, then you would enter "03012023" or use the calendar to set the date.
- If typing a date, never type the date part separators. Type only 8 numbers.
- If using the calendar, click on the month at the top to list the months.
- Then to change years, click on the year at the top for a list of years.
- Click on the year. Click on the month. Click on the date.
- You can always click on "Today" at the bottom of a calendar to select the current date.
- Hit the [Tab] key to move to the "Amount" column. Enter the amount of the loan. For this example, enter 250,000.00. When entering numbers, do not enter commas. They will be entered for you. Also, there should not be any need to use the [backspace] key or [delete] key to clear a value. If you use the [tab] key to move to the amount column or click in the column with your mouse, the current value will be selected. Just start typing to clear it.
- Hit [Tab] to move to the "# Periods" column. For normal loans, monies are only advanced once. Therefore, for 99.9% of all loan events, you'll want to enter a 1 in this column.
- Next, enter details about the payment series
- Click on the second row or use the down arrow key. For the "Series", select Payment if it is not already selected.
- Hit [Tab] to move to the "Date" column. Enter the date the first payment is due. For this example, enter 04012023.
- Type [Tab] once more to move to the "Amount" column. Since the payment amount is unknown, type a u. This will display the word "Unknown". Fig. 10
- Hit [Tab] again to move to the "# Periods" column. For this example, we'll assume a 15-year loan with monthly payments. Enter 180
- Type [Tab] again. This time, your focus will move to the "Frequency" column. Select "Monthly". This tells the calculator that you want the payment frequency to be monthly starting with the first payment due on April 1, 2023. Notice when "# Periods" is greater than one, the "End Date" is calculated.
- We are now ready to calculate the unknown value. Your screen should look like the one above
- Calculate — Click on the [Calculate] button at the top of the calculator
- The word "Unknown" will be replaced with the monthly payment amount. Assuming you are using the standard default settings and entered the example as shown, the result will be $1,912.48. Fig. 11
- To view detailed amortization schedule showing the monthly payment allocated between principal and interest, click on the "Schedule" button at the top in the button row
- A sample of the detailed (printable) amortization schedule. (A similar schedule is available for investment cash flows.) Fig. 12
- To "visualize" the loan details, don't forget to check out the charts. They are automatically created. There's nothing to enter. Fig. 13
- Click on the [Charts] button next to [Schedule]
- Pass your mouse over chart points for specific totals
- There are a few other features/items you should know about.
- The [Insert] button inserts a row into the cash flow
- The [Delete] button deletes the currently selected row in the cash flow.
- [Expand] creates one row for each cash flow. You can create one row with 360 payments. Click [Expand] and 360 rows will be created so you can edit dates and amounts.
- [Collapse] (was "Sort" in prior version) collapses the cash flows after an "Expand" The cash flow will be shown using as few rows as possible
- Users can save all their inputs for later recall. Click on the [File] button. Saving and recalling your entries work much like saving a word processing document or a spreadsheet. When saving your entries, the file is automatically saved to your browser's "Download" folder. Fig. 14
Calculating a loan payment is a very fundamental financial calculation. Unlike other calculators, the Ultimate Financial Calculator can calculate a payment amount for a complex loan which allows you to structure a loan or mortgage to meet any need imaginable.
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