Home remodeling can be a daunting task mainly because it can get very expensive most of the times. Good loan options like home remodeling loans and home equity loans can bring down a lot of your burden making your dream home a reality. Let’s explore how to calculate loan payment for your home remodeling.
Calculate Loan Payment
To calculate a loan payment, you have a couple of options:
- Manual calculation (works for all currencies and loan types), or
- Online calculator for mortgages.
To calculate it manually, there is a universal formula for calculating loan payments:
M = P * ( J / (1 – (1 + J)-N))
This is what each variable means
- M = payment amount
- P = principal, meaning the amount of money borrowed
- J = effective interest rate (Note that this is usually not the annual interest rate; see below for an explanation)
- N = total number of payments (For example, if the loan term is 5 years and you’ll be paying in twelve monthly installments each year, your total number of payments will be N = 5 * 12 = 60)
Calculate your effective interest J. Most loan terms mention the “nominal annual interest rate,” but you probably aren’t paying your loan off in annual installments. Divide the annual interest rate by 100 to put it in decimal form, then divide it by the number of payments you make each year to get the effective interest rate.
For example, if the annual interest rate is 5%, and you pay in monthly installments (12 times per year), calculate 5/100 to get 0.05, then calculate J= 0.05 / 12 = 0.004167.
Be careful about rounding results partway through. Ideally, use a graphing calculator or calculator software to calculate the entire formula in one line. If you are using a calculator that can only handle one step at a time, or if you want to follow the steps in detail below, round to no fewer than four significant digits before moving on to the next step. Rounding to a shorter decimal could result in significant rounding errors in your final answer.
Even simple calculators usually have an “Ans” button. This enters the previous answer into the next calculation, which is more accurate.
If you decide to go for the quicker way to calculate loan payment online, you can find some great options like the ones below:
- Bankrate.com and MLCalc are both simple calculators that also show a full table of your payment schedule, including remaining debt.
- CalculatorSoup is useful for loans with unusual payment or compounding intervals.