How to Work Out the Interest on a Mortgage

It's not very hard to calculate your monthly interest--and you might even catch your lender in a mistake.

It's not very hard to calculate your monthly interest--and you might even catch your lender in a mistake.

Although your lender will usually include an accounting of which portions of your payment went to principal, interest and escrow contribution for homeowner's insurance and property taxes, it's still important for you to be able to do this yourself. If nothing else, you could very well catch a mistake--and the Murphy's Law of finance is that creditor errors won't be in your favor. Fortunately, the calculations for this are fairly straightforward.

Step 1

Locate your annual percentage rate (APR) and the unpaid principal amount on your monthly loan statement.

Step 2

Divide your APR by 12 if your payments are monthly, or by 26 if they are bi-weekly, to get your periodic interest rate. For example, with an APR of 4 percent and a monthly payment period: 4 divided by 12 is .3333.

Step 3

Divide the periodic interest rate by 100 to convert it to a decimal: 0.3333 converts to 0.003333.

Step 4

Multiply the monthly rate in decimal form by the unpaid principal figure to get the interest due for the current month. For example, with a principal balance of $125,000: 0.003333 times $125,000 equals $416.67.

Step 5

Subtract the interest for the month from your monthly payment to see how much is going to principal. Let's say the payment on our hypothetical loan is $596.77: $596.77 minus $416.67 equals $180.10.

Step 6

Subtract the principal portion of your payment from the total principal to get the remaining principal upon which you will pay next month's interest. $125,000 minus $180.10 equals $124,819.90. This monthly reduction is called "amortization."

About the Author

Billie Jo Jannen is a politics and lifestyle columnist in rural San Diego County and a senior copy editor for Demand Media. Her writing and editing career spans 23 years, and she specializes in border and environmental affairs. Jannen's eclectic education includes engineering and horticulture, and she represents the Rural Economic Action League in regional economic development planning.

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