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

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Mortgage Formula to find annual Equity

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