Mortgage Formula to find annual Equity

[Ibrahim Yamini]

I’ve been struggling trying to find out how to find monthly interest and principal payments separately but I kept coming up with  them combined which made it difficult for me figure out how much equity I would accumulate in 1 year on my first investment property.

I found this formula on YouTube and it seems to be helpful. Can somebody confirm that I calculated the monthly interest and principle correctly?

Unfortunately, I had to do a huge calculation to find out monthly mortgage payments first.

 P = Mortgage 

M = Monthly payments

r = Annual interest 

n = total payments 

M = P * r(1+r)^n
     (1+r)^n-1

For example a house $250K, what is the monthly payment if the interest rate is 5% or .05?

M = 250000 (0.05/12)(1+0.05/12)^360
     (1+0.05/12)^360 - 1

First, we’ll take $250000 * .05/12 = 1041.67

then we calculate this by itself. (1+0.05/12)^360 = 4.4677443

for simplicity let’s round to 1042.

Now we have 

M = (1042) (4.467743) Subtract 1 from the 4 and divide

       (3.467743)

M = $1342.48 monthly mortgage 

My issue is that I was trying to find out how much equity I would have at the end of the year so I had more work to do.

So now we need to find out how much interest we would pay over 30 years or 360 months 

T = Total 

T = 1342.48 * 360 = $483,292.80.  Now subtract by $250000 and we get $233,292.8

Total interest paid is $233,292.8.  How much are we paying interest each month?   divide this number by 360 

Monthly interest = $648 

Hopefully I did this correctly.  Now that I know how much interest I’m paying, I should be able to figure out the annual equity. 

We just subtract $1342.48 - 648 and we get 694.48

694.48 * 12 = $8333.76.

If my calculations are correct my annual equity should be $8333.76 

 Now that the calculations are done I have question.  Based on the information above, with equity, I should be able to buy an investment property, wait 2 years to build more equity, buy 1 more, wait another year and buy two investment properties, obtaining my goal of buying 4 properties in a 3 year period.  I did the calculations offline, which gave me $66K in solid equity, without calculating for appreciation-25% which would give me $49K to invest in another property. 

With the $49K, should I use it to buy four more properties in the $250K range, putting $12K in each property?   Or would I be better off using that investment money in a larger more luxurious house in the $500K range to rent out?

Thank you for any assistance and let me know if my calculations are correct or need adjusting 

-Ibrahim