Summarize the following:
In order to calculate interest paid on a mortgage loan, we will calculate the monthly payment and then use the simple method from method 1 above to calculate interest. The monthly payment equation can be represented as follows: M=Pr(1+r)n(1+r)n1{\displaystyle M=P{
rac {r(1+r)^{n}}{(1+r)^{n}-1}}}. These variables represent the following inputs: M is your monthly payment. P is your principal. r is your monthly interest rate, calculated by dividing your annual interest rate by 12. n is your number of payments (the number of months you will be paying the loan) You will need to input your principal, monthly interest rate, and number of payments in order to find your monthly payment. This information can be easily found in your loan agreement or from a quoted loan estimate. Check the information again to be sure of its accuracy before using it in calculations. For example, imagine you have a $100,000 mortgage loan with 6 percent annual interest over 15 years. Your input for "P" would be $100,000. For "r," you would use your monthly interest rate, which would be 0.06 (6 percent) divided by 12, or 0.005 (0.5 percent). For "n" you would use your total number of payments, one for each month in fifteen years, which would be 12*15, or 180. In this example, your complete equation would look like this:M=$100,0000.005(1+0.005)180(1+0.005)1801{\displaystyle M=\$100,000{
rac {0.005(1+0.005)^{180}}{(1+0.005)^{180}-1}}} " Simplify your terms by doing the first step in the order of operations, which is adding the 1 and "r" inside the parentheses on the top and bottom of the equation. This is a simple step that will make your equation look much less complicated. After this step, your sample equation would look like this:M=$100,0000.005(1.005)180(1.005)1801{\displaystyle M=\$100,000{
rac {0.005(1.005)^{180}}{(1.005)^{180}-1}}} The result of the previous step must now be raised to the power of "n." Keep in mind that only the figures inside the parentheses will be raised to this power, not the "r" outside of it or the -1 at the end. After this step the sample equation would look like this:M=$100,0000.005(2.454)2.4541{\displaystyle M=\$100,000{
rac {0.005(2.454)}{2.454-1}}} Here, you should multiple "r" times the result of the last step on the top (the numerator) and subtract 1 from your result on the bottom (the denominator). The same equation would look like this after this step:M=$100,0000.012271.454{\displaystyle M=\$100,000{
rac {0.01227}{1.454}}} In the example, your equation would now be:M=$100,000(0.008439){\displaystyle M=\$100,000*(0.008439)} This will give you your monthly loan payment. In the example, this would be ($100,000)*(0.008439), or $843.90. This represents your monthly payments. With this information, you can now calculate total interest paid and interest paid each month. Both will allow you to compare different amounts of interest you might pay with different loans and see which one is right for you. Find monthly interest paid by dividing "P" by "n" and subtracting this number for your monthly payments, "M." Find total interest paid by multiplying your monthly payment "M" by "n" and then subtracting "P."
Understand the equation. Input your information into the equation. Simplify your equation by adding 1 to the "r. Solve the exponents. Simplify again. Divide the numerator by the denominator. Multiply "P" by this result. Calculate interest paid using the payment information.