How to Calculate Mortgage Interest Using an Amortization Table

Interest is an important component of a mortgage amortization table.

Interest is an important component of a mortgage amortization table.

Interest is one of the key components of a mortgage amortization table. A typical amortization table shows your balance at the beginning of the month, your monthly mortgage payment, interest charged during the month, the amount of mortgage principal paid off during the month and your mortgage balance at the end of the month. Calculating interest is a simple process requiring only a calculator and the appropriate formula.

Calculating Interest

Make sure you have the mortgage rate, and not the annual percentage rate (APR). Lenders use the mortgage rate divided by 12 to calculate your monthly interest charges and your total monthly payment. The APR is the effective annual interest rate resulting from the mortgage rate divided by 12. For example, if the mortgage rate is 6 percent, the monthly rate is 0.5 percent (6 percent divided by 12), and the APR will be 1.005^12 - 1 or 6.17 percent approximately.

If you have only the APR available, convert it to the mortgage rate by using (1+i)^(1/12) - 1, where i is the APR. If your APR was 4.07415 percent for example, the resulting mortgage rate would be (1.0407415)^(1/12) - 1 or 4.0 percent.

Divide the mortgage rate by 12.

Multiply the mortgage balance by the mortgage rate divided by 12. This is the interest charged for the month.

Subtract the interest charge from the monthly mortgage payment. This is your principal amount paid for the month.

Subtract the principal amount paid from the mortgage balance. This is your new mortgage balance at the end of the month.

Repeat Steps 4 to 6 for every month you wish to create an amortization table.

Items you will need

  • Calculator

Tips

  • Verify your calculations using an online mortgage calculator. You will see several appear following a simple search.
  • In any month you wish to add the effect of an additional payment, simply subtract the additional payment from the mortgage balance calculated on the same date as the extra payment is made.
 

About the Author

Philippe Lanctot started writing for business trade publications in 1990. He has contributed copy for the "Canadian Insurance Journal" and has been the co-author of text for life insurance company marketing guides. He holds a Bachelor of Science in mathematics from the University of Montreal with a minor in English.

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