Amortization is the monthly recalculation of principal and interest that takes place as you gradually pay down the principal of your mortgage. The portions of the payment that go to principal and interest change with every payment because interest is charged only on the portion of the principal that remains unpaid. The calculations are fairly straightforward and can be done on paper, or with a simple calculator.

### Items you will need

- Mortgage statement
- Calculator

Consult your mortgage statement to find your annual percentage rate, or APR, and the principal balance on your loan. The principal balance is whatever you borrowed, less the amount you have paid back. The APR is your interest rate.

Divide your APR by 12 to get your monthly interest rate. For example, using an APR of 5 percent, 5 divided by 12 is 0.4166.

Divide the result by 100 to convert to a decimal; in our example, 0.4166 becomes 0.004166.

Multiply your APR in decimal form by the principal balance to compute the amount of interest you will pay in the current month. For example, a principal balance of $232,000 multiplied by 0.004166 equals an interest payment of $966.51.

Subtract the interest amount from your contractual monthly payment, not counting the escrow portion of the payment, to see how much will be applied against the principal. For example, $1,342 minus $966.51 leaves $375.49 for principal reduction.

Subtract the principal payment from your total principal to get the amount of money on which you will pay interest next month: $232,000 minus $375.49 leaves a principal balance of $231,634.51.

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