If you have a fixed-rate mortgage, you only have to calculate your monthly payment once because it won't change over the life of the mortgage. But, if you have an adjustable-rate mortgage, you must re-figure your interest rate and payment every time the rate changes. For example, if your ARM adjusts the interest rate every year, you need to recalculate your interest rate and payments annually. The new interest rate is based on your margin, which never changes, and the interest rate index your ARM is linked to. Common indexes include the London Interbank Offered Rate and the Cost of Funds Index.
Add the margin to the interest rate index to find your new interest rate. For example, assume your ARM is tied to the LIBOR, your margin is 2 percent and the new LIBOR is 3.4 percent. Your new interest rate is the sum of these numbers: 5.4 percent. If you have a fixed-rate mortgage, skip this step because you already know your interest rate.Step 2
Multiply the number of years left in your mortgage by 12 to figure the number of payments remaining on your mortgage. For example, if your ARM was originally 30 years but you've been making payments for 6 years, multiply 24 by 12 to find you have 288 monthly payments left.Step 3
Divide the interest rate by 1200 to convert it from an annual percentage to a monthly rate expressed as a decimal. In this example, divide 5.4 percent by 1200 to get 0.0045.Step 4
Add 1 to the monthly rate. Continuing this example, add 1 to 0.0045 to get 1.0045.Step 5
Raise the result to the negative power of the number of payments remaining. In this example, raise 1.0045 to the negative 288th power to get 0.274420763.Step 6
Subtract the result from 1. In this example, subtract 0.274420763 from 1 to get 0.725579237.Step 7
Divide the monthly rate by the result. Continuing the example, divide 0.0045 by 0.725579237 to get 0.006201942.Step 8
Multiply the result by your outstanding balance to find your mortgage payment. In this example, if you still owe $178,000, multiply 0.006201942 by $178,000 to find your monthly mortgage payment equals $1,103.95.
- Some ARMs have either interest rate caps or payment caps, which limit the amount by which your payment can change at one time or over the life of the loan. For example, a periodic interest rate cap of 2.5 percent means your interest rate won't change by more than 2.5 percent each time the payment adjusts, while a 4 percent lifetime cap means the rate won't change more than 4 percent over the life of the loan.
Based in the Kansas City area, Mike specializes in personal finance and business topics. He has been writing since 2009 and has been published by "Quicken," "TurboTax," and "The Motley Fool."