How the mortgage payment is calculated
- Loan amount: the property price minus the down payment. An apartment for 35 000 000 ֏ with a 20% down payment means a loan of 28 000 000 ֏.
- Monthly rate: the annual rate divided by 12. At 12.5% a year it is about 1.042% a month.
- Monthly payment depends on the payment type: an annuity stays the same for the whole term, a differentiated payment goes down every month.
- Total interest (overpayment) is the sum of all interest over the term. Total repaid is the loan plus interest; the down payment is not included.
The annuity payment formula:
Payment = Loan × i / (1 − (1 + i)−n), where i is the monthly rate and n is the term in months.
In the first years of an annuity almost the whole payment goes to interest. In the first month, 291 667 ֏ of the 318 119 ֏ payment is interest and only about 26 450 ֏ repays the debt. That is why early repayment at the start of the term saves the most.
Annuity and differentiated payments
- Annuity: the payment is the same for the whole term. At first it is mostly interest, towards the end mostly principal. Your monthly budget does not change, so it is easier to plan.
- Differentiated: the principal is repaid in equal parts (loan / number of months), and interest is charged on the remaining balance. The first payment is the largest, then it goes down every month. Total interest is lower than with an annuity.
For 28 000 000 ֏ over 20 years at 12.5%, differentiated payments start at 408 333 ֏ (116 667 ֏ of principal and 291 667 ֏ of interest) and end at 117 882 ֏.
Why the bank’s numbers may differ
The calculator uses the nominal rate. The payment in your contract may be different:
- the bank charges interest by the actual number of days in a month, not 1/12 of the annual rate;
- fees, property and life insurance and property valuation are added to the loan;
- with a floating rate the payment changes with the rate; the contract sets the limits of the change.
To compare bank offers, look at the effective rate (փաստացի տոկոսադրույք): it includes the required payments and shows the real cost of the loan.
The default values are an apartment of about 70 m² at the average Yerevan price, a 20% down payment, a 20-year term and a 12.5% rate close to the market average. Enter your bank’s terms.
Examples
Apartment for 35 000 000 ֏, annuity
Down payment 20% (7 000 000 ֏), loan 28 000 000 ֏ for 20 years at 12.5% a year. Monthly payment 318 119 ֏, total interest 48 348 645 ֏, total repaid on the loan 76 348 645 ֏.
Same terms, differentiated payments
Loan 28 000 000 ֏ for 20 years at 12.5%. The first payment is 408 333 ֏, the last one 117 882 ֏. Total interest 35 145 833 ֏, which is 13 202 812 ֏ less than with an annuity.
Same loan for 10 years
28 000 000 ֏ at 12.5% for 10 years: the payment is 409 853 ֏, 91 734 ֏ more, but total interest is 21 182 393 ֏, 2.3 times less than over 20 years.
Frequently asked questions
How do I calculate a monthly mortgage payment?
Subtract the down payment from the property price to get the loan amount. The monthly rate is the annual rate divided by 12. Annuity payment = loan × i / (1 − (1 + i)^−n), where i is the monthly rate and n is the number of months. For example, 28 000 000 ֏ at 12.5% for 20 years is 318 119 ֏ a month.
Which is better: annuity or differentiated payments?
Differentiated payments cost less in interest: the debt goes down faster, so interest is charged on a smaller balance. But the first payments are much higher: for 28 000 000 ֏ over 20 years at 12.5% it is 408 333 ֏ against 318 119 ֏, and your income has to cover it. An annuity is easier to plan: the payment stays the same.
How does the mortgage term affect the total interest?
A longer term means a smaller payment and more interest. For 28 000 000 ֏ at 12.5%: over 10 years it is 409 853 ֏ a month and 21 182 393 ֏ of interest, over 20 years 318 119 ֏ and 48 348 645 ֏, over 30 years 298 832 ֏ and 79 579 582 ֏.
Can I repay a mortgage early, and what does it cost?
Yes. The Law on Housing Mortgage Lending caps the early repayment penalty: at most 0.6% of the amount repaid early in the first year of the contract, 0.4% in the second and 0.2% in the third. It applies only to the amount above the principal already due under the schedule for that contract year, and there is none if your contract does not provide for it. With a fixed rate, in the first three years the bank may also claim compensation for its losses, capped at 3% of the amount repaid early. The exact terms are in your contract. The calculator does not include early repayment yet.
Why does the bank quote a different payment?
The calculator charges interest as the annual rate / 12 and leaves out fees, insurance and property valuation. A bank may count interest by the actual days in a month and add required payments. Compare bank offers by the effective rate (փաստացի տոկոսադրույք), which includes these costs.
Sources
Updated:
For reference only: interest is the annual rate / 12, with no fees, insurance or early repayment. Your bank will give you the exact schedule.