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Top 11 Financial Formulas for Homeowners, Borrowers, and Investors
It is crucial for homeowners, borrowers, and investors to understand the important financial calculations. The calculations assist you in making good decisions, wisely managing finances, and planning. Whether you are computing monthly mortgage payments, comparing investment returns, or calculating how much you can borrow, understanding the right calculations can help you make good decisions.
From mortgage computations to estimating investment returns, the most essential financial formulas enable you to tackle tough financial situations with ease. In this tutorial, we will cover the essential formulas that you have to understand in order to maximize your financial planning and enhance your financial literacy. As long as you have a good grasp of these computations, you can control your finances with confidence, invest appropriately, and lock down your future finances.
Mortgage & Loan Formulas
1. Monthly Mortgage Payment Formula
M = (P × r × (1 + r)^n) / ((1 + r)^n – 1)Where:
- M = Monthly Payment
- P = Loan Principal (Amount Borrowed)
- r = Monthly Interest Rate (Annual Rate ÷ 12 ÷ 100)
- n = Total Number of Payments (Loan Term in Months)
2. Loan Interest Formula (Simple Interest)
A = (Income × 28%) / 12Where:
- I = Interest
- P = Principal
- r = Annual Interest Rate (as a decimal)
- t = Loan Term (in years)
3. Compound Interest Formula
A = P × (1 + r/n)^(nt)Where:
- A = Future Value
- P = Initial Principal
- r = Annual Interest Rate (as a decimal)
- n = Number of Times Interest is Compounded per Year
- t = Number of Years
Investment & Savings Formulas
4. Future Value of Investment (FV)
FV = PV × (1 + r)^tWhere:
- FV = Future Value
- P = Initial Investment
- r = Annual Return Rate
- t = Number of Years
5. Return on Investment (ROI) Formula
ROI = ((Current Value of Investment – Cost of Investment) / Cost of Investment) × 1006. Net Present Value (NPV) Formula
NPV = Σ [CFt / (1 + r)^t] – C0Where:
- C= Cash Inflow at Time t
- r = Discount Rate
- C = Initial Investment
Debt & Credit Formulas
7. Debt-to-Income Ratio (DTI)
DTI = (Total Debt Payments / Gross Income) × 1008. Credit Card Minimum Payment Formula
Minimum Payment = (Outstanding Balance × Minimum Payment Rate) + Any FeesWhere:
- MP = Minimum Payment
- B = Current Balance
- Percentage Rate (Typically 1-3%)
Inflation & Financial Planning Formulas
9. Inflation Rate Formula
Inflation Rate = [(CPI in Current Year – CPI in Previous Year) / CPI in Previous Year] × 100
Where CPI = Consumer Price Index
10. Emergency Fund Calculation
Emergency Fund = Monthly Expenses × Number of Months (3 to 6)11. Net Worth Formula
Net Worth = Total Assets – Total LiabilitiesFrequently Asked Questions (FAQs)
Are the calculators universally free to use?
Yes! They’re all 100% free with no sign-up and readily accessible on our website.
Are the calculations highly accurate?
The calculators apply industry-standard formulas to provide you with reliable estimations but the final outcome may vary based on the lenders’ terms and market conditions.
Are the calculators suitable for professional financial planning?
These calculators provide useful estimates but should be treated as such. If you require individual guidance, consult the services of a financial adviser.
How can I calculate the compound interest on my savings account?
Enter your initial deposit, regular contributions, rate of interest, and term into our Savings Calculator and see your savings build up before your very eyes.
How do I pay off my credit card more quickly?
Utilize the Credit Card Payoff Calculator to contrast various payment methods and observe the impact of making extra payments to shorten your payoff time and decrease your interest.
What is a good DTI ratio?
A DTI of 36% or below is usually best. A DTI greater than 43% may become harder to qualify for financing.
How much do I need to retire?
Use our calculator to calculate your retirement savings requirements on the basis of projected living expenditures and living standards.
Can I compare different mortgage loan options?
Yes! With our Mortgage Calculator, you can experiment with different terms of the loan, rates of interest, and down payments to find what would work best for you.
