Unless you have an interest-only mortgage, the amount of mortgage interest you pay each month goes down as your principal balance goes down, although your payment will remain the same. When you first take out the loan, almost all of the payment goes to interest. You can easily do your own calculation of what a loan will cost and use an online amortization calculator to learn the full cost of the loan over time.
Find the annual percentage rate (APR) on your loan statement or on the loan offer, if you are considering one.
Multiply the APR by the principal remaining on your loan, or by the amount you plan to borrow. For example, assume an APR of 4.5 percent and a new loan for $350,000: 0.045 times $350,000 is $15,750.
Divide the result by 12 to learn the first month's interest payment. For example, $15,750 divided by 12 is $1,312.50.
Subtract the interest figure from the total monthly payment, or proposed monthly payment, to learn how much the current payment will reduce the principal. For example, with a monthly payment of $1,773.40: $1,773.40 minus $1,312.50 leaves $460.90 in principal reduction.
Subtract the principal portion of the payment from the principal figure to get the amount of principal you will use to compute the following month's interest payment. For example, $350,000 minus $460.90 equals a new principal balance of $349,539.10
Multiply the monthly payments by the number of months it will take to pay off the loan. For example, assume a 30-year loan: $1,773.40 times 360 is $638,424.
Subtract your original loan amount from the total payments to learn the cost of interest over the life of the loan. In our example, $638,424 minus $350,000 equals $288,424 in interest that will be paid over the life of the loan.
Go to an online mortgage calculator, such as the one offered by bankrate.com (see Resources), to see full information on the loan for its entire term. Enter the start date of the loan, the term in years and the amount borrowed, or to be borrowed, and press "Calculate." The numbers shown for monthly payment and pay-off date should be the same as those shown on your mortgage statement or offer.
Scroll down ever-so-slightly to the "Show/Recalculate Amortization Table" button and click on it to see monthly amortization details over the life of the loan.
- Annual percentage rate is usually given as a percent, such as 4.5 percent, and must be converted to a decimal, such as 0.045, for use in these calculations.
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