M

Calculation Methodology

A quick explanation of how fixed-rate mortgage results are calculated, followed by the complete technical detail.

Quick explanation

For a fixed-rate principal-and-interest loan, the engine calculates a periodic payment from the loan amount, rate, term, and payment frequency. Each payment covers that period's interest first; the rest reduces principal. Extra payments reduce principal, so later interest is calculated on a lower balance.

Results derived from these inputs are calculated. Values that depend on external assumptions, such as taxes or insurance, are identified as estimates.

Precision and Rounding

Internal calculations use Decimal.js rather than standard JavaScript binary floating-point math. Display values are rounded for presentation; a lender's timing and rounding conventions can produce different figures.

Standard Payment Formula

For fixed-rate, principal-and-interest mortgages, the engine uses this standard amortization formula with a periodic rate supplied by the selected country adapter:

M = P [ i(1 + i)^n ] / [ (1 + i)^n - 1 ]
  • M: Total payment per period
  • P: Principal loan amount
  • i: Periodic interest rate derived from the quoted annual rate under the selected country's convention
  • n: Total number of payments (years × periods per year)

For Canada, the model applies a nominal semi-annual compounding convention to the entered quoted annual rate before converting it to the selected payment period. Other country adapters use their configured periodic-rate convention. These conventions are modeling assumptions and are not a quote or statement of every lender's practice.

Amortization Schedule Generation

The amortization schedule is built row by row:

  1. Interest for the period is calculated as Starting Balance × Periodic Rate.
  2. The scheduled payment is applied first to the interest charge.
  3. The remainder of the scheduled payment is applied to the principal balance.
  4. Any extra payments specified are applied entirely to the principal.
  5. The ending balance carries forward to the next period.

When the remaining modeled balance is less than the scheduled payment, the model reduces the final scheduled payment to clear the modeled balance plus that period's interest. Actual payoff amounts can differ because of daily interest, fees, and servicer timing.

Payment Frequencies

The engine supports multiple payment frequencies. The selected country adapter determines the applicable periodic-rate conversion for each frequency:

  • Monthly: 12 periods per year.
  • Bi-weekly: 26 periods per year (effectively making 13 monthly-equivalent payments annually).
  • Weekly: 52 periods per year.

Extra Payments & Payoff Logic

Extra payments are modeled at the selected point in the timeline. When the loan terms apply them to principal, the later modeled interest charge is lower and the modeled payoff can occur sooner. Actual servicer posting times, prepayment terms, and payment rules may differ.

Calculated vs. Estimated Labels

The engine explicitly separates Calculated values from Estimated values:

  • Calculated: Values derived by the model's formulas from the inputs and settings selected (for example, modeled amortization and interest charges).
  • User-provided: Values entered or selected by the user; they are not independently verified.
  • Estimated: Values that depend on external assumptions or incomplete information (for example, affordability capacity, property taxes, or insurance).

Country conventions and lender results

The selected country adapter controls supported payment frequencies and the periodic-rate convention. Canada converts a quoted annual rate from a nominal semi-annual convention; the other currently supported adapters use their configured periodic conversion. For Australia, a supplied offset can produce a separate informational interest-bearing-balance figure but does not recalculate the main amortization schedule. US mortgage insurance is a separate user-provided cost, and UK interest-only modelling leaves capital outstanding. These are scoped calculation conventions, not a catalogue of lender products.

A lender or servicer can use daily-interest timing, payment posting rules, product terms, verified income and expenses, property data, fees, insurance rules, and rounding that differ from this model. Do not use a result as an approval, payoff statement, or offer. See the US, Australian, Canadian & UK mortgage-model guide for adapter provenance, effective/review dates, country terminology, and official references.

Related Resources