Estimating Monthly Mortgage Payments
A prospective home buyer needs to understand their potential monthly mortgage payments based on different interest rates and loan terms to budget effectively and compare financing options for their dream home.
=-PMT(B2/12, C2*12, A2) How it works: The PMT function calculates the payment for a loan based on constant payments and a constant interest rate. By converting the annual interest rate and loan term into monthly equivalents, it accurately determines the fixed monthly payment required to fully amortize the mortgage over its term, helping the home buyer plan their finances.
Data Setup
| Loan Amount | Annual Interest Rate | Loan Term (Years) |
|---|---|---|
| 300000 | 0.045 | 30 |
Step-by-Step Guide
Identify the principal loan amount (A2), the annual interest rate (B2), and the loan term in years (C2) from your data.
Divide the annual interest rate by 12 to convert it into a monthly rate (B2/12).
Multiply the loan term in years by 12 to get the total number of monthly payments (C2*12).
Input these converted values into the PMT function: `=-PMT(monthly_rate, total_payments, principal_amount)`.
The negative sign before PMT is used to display the payment as a positive value, as PMT typically returns a negative value representing an outflow.