How to Calculate Mortgage Payment in Excel

Calculating mortgage payment is an essential part of budgeting for your dream home. If you’re like most people, finding an affordable payment plan is a top priority when shopping for a mortgage. Fortunately, Microsoft Excel offers a simple and easy-to-use solution for calculating mortgage payment. Excel can handle the calculations of complex loan scenarios by computing monthly payments, total interest, and amortization over the life of the loan. In this tutorial, we will walk you through the step-by-step process of calculating mortgage payment in Excel. By the end of this post, you’ll have the tools and knowledge to create your own mortgage calculator spreadsheet.

Understanding Mortgage Payment Calculation

Before we dive into the process of calculating mortgage payments in Excel, it’s important to understand the components that are used to compute the payment. A mortgage payment is typically composed of four parts: principal, interest, taxes, and insurance (PITI). The principal is the amount borrowed to purchase the property, interest is the cost of borrowing the money, taxes are the property taxes that are based on home value, and insurance includes homeowner’s insurance and mortgage insurance.

Using Excel Functions to Calculate Mortgage Payment

The PMT Function

The PMT function is the core function used to calculate mortgage payment in Excel. The syntax for the PMT function is:

=PMT(Rate/12,Term*12,-Loan Amount)

where:

• Rate is the interest rate per year.
• Term is the number of years the loan is for.
• Loan Amount is the total amount of the loan.

For example, let’s say you have a 30-year, $300,000 mortgage with a 4.5% interest rate. The PMT function would look like this:

=PMT(4.5%/12,30*12,-$300,000)

Breaking Down the PMT Formula

The PMT function computes the monthly payment required to pay off a loan based on a constant interest rate, constant monthly payments, and a constant loan amount. To apply these constants to our example:

• The interest rate is 4.5% per year divided by 12 (for 12 months) = 0.375% per month.
• The loan amount is -$300,000 (note the negative sign).
• The term is 30 years multiplied by 12 months = 360 months.

By plugging these values into the formula, the PMT function calculates the monthly mortgage payment to be $1,520.06.

Creating a Mortgage Calculator in Excel

If you’d like to have a more interactive mortgage calculator, you can create a custom calculator in Excel that will allow you to adjust the inputs. Here’s how to do it:

Step 1: Create a Table

First, create a table with headers for Loan Amount, Interest Rate, Loan Term, and Monthly Payment.

Step 2: Input Formulas

Input the following formulas in the Monthly Payment column:

=PMT(B2/12,B3*12,-B1)

Where B2, B3, and B1 correspond to the Interest Rate, Loan Term, and Loan Amount values in their respective columns.

Step 3: Enter Values

Enter the loan amount, interest rate, and loan term into their respective columns.

Step 4: Get Your Monthly Payment

The monthly mortgage payment will be automatically calculated based on the values entered.

Final Thoughts

Calculating mortgage payments in Excel is a simple and easy process. Understanding the components of a mortgage payment and using the PMT function can help you make informed decisions about your home purchase. With the added convenience of creating a mortgage calculator in Excel, you can quickly and easily determine the affordability of your dream home. We hope this tutorial has provided you with the tools and knowledge to calculate mortgage payments in Excel with ease.

Tips for Mortgage Payment Calculation in Excel

While the PMT function is a straightforward way to calculate mortgage payments, there are a few tips and tricks that can simplify the process even more:

Use Cell References for Values

Instead of inputting values directly into the formula, use cell references so that you can easily update the values without having to edit the formula each time.

Include Additional Costs in Your Calculation

Remember to include any additional costs that can affect your monthly payment. This can include property taxes, mortgage insurance, and homeowner’s insurance. These values should be added to the loan amount and subtracted from the monthly payment to get an accurate calculation.

Account for Extra Payments

If you plan to make extra payments to pay off your mortgage faster, you can include this in your calculation by adding the extra payment amount to the monthly payment in the PMT formula.

The Benefits of Using Excel for Mortgage Payment Calculation

Accuracy: Excel provides accurate and consistent computations that help you have a clear understanding of your financial status.

Flexibility: You can customize your calculation by considering different mortgage scenarios and inputs that best represent your specific situation.

Time-saving: Excel helps to easily compute monthly mortgage payments, total interest and create amortization schedules, saving you the time it would take to calculate these manually.

Conclusion

Calculating mortgage payments in Excel is a simple process that can help you make informed decisions about your home purchase. By understanding the components of a mortgage payment and utilizing the PMT function, you can determine an affordable and practical payment plan for your dream home. Excel provides flexible computations and quick solutions that can help you save time and effort while also providing accurate results. Regularly reviewing your payments and adjusting your payment plan with your lender can help to ensure you stay on track with your mortgage and meet your homeownership goals.

FAQ

Here are some common questions related to calculating mortgage payment in Excel:

Can I Use Excel to Calculate Other Loan Payments?

Yes, the PMT function can be used to calculate other types of loans, such as car loans, personal loans, and business loans. Simply input the loan variables, such as interest rate, loan amount, and loan term, into the PMT formula and Excel will calculate the monthly payment.

What Other Excel Functions Can I Use for Mortgage Calculations?

In addition to the PMT function, Excel offers other functions such as PV, RATE, FV, and NPER, which can be used to calculate different aspects of a mortgage, including the present value, interest rate, future value, and number of periods. Utilizing these functions can provide a more detailed and accurate mortgage calculation.

Can I Create Customized Amortization Schedules Using Excel?

Yes, Excel provides a flexible solution for creating amortization schedules for your mortgage. You can use the PPMT and IPMT functions to create a custom amortization schedule that includes breakdowns of payment amount toward principal and interest as well as the outstanding balance.

Is There a Limit on the Number of Loans I Can Calculate in Excel?

No, you can use Excel to calculate and compare multiple loan scenarios at the same time. By inputting the different loan variables into separate columns, you can calculate and compare the monthly payments, interest rates, and loan terms side-by-side.

Can I Share My Excel Mortgage Calculator With Others?

Yes, you can share your Excel mortgage calculator with others by saving it as an Excel workbook and sharing it via email or file-sharing platforms. You can also protect your spreadsheet from modifications by others, ensuring that they only access the calculations and not accidentally alter the formulas.