To calculate how much interest you'll pay on a mortgage each month, you can use the monthly interest rate. Generally, you'll find this by dividing your annual interest rate by 12. Then, multiply this by the amount of principal outstanding on the loan. Note that this means you'll pay less interest later in the life of the mortgage, but keep in mind that this won't always hold true for adjustable rate mortgages.
TL;DR (Too Long; Didn't Read)
Divide you annual mortgage interest rate by 12 to get your monthly rate. Multiply this number by the total amount outstanding on the loan to get how much interest you owe for the month.
Understanding Mortgage Interest Rates
When you take out a mortgage to buy a home, you are borrowing money backed by the home's price. Naturally, the lender won't allow you to borrow money for free. To make money, the lender charges interest that accrues over the life of the loan. The amount that you borrowed in the first place is known as the principal on the mortgage.
On a fixed-rate mortgage, this interest rate will remain the same for the term of the loan, whether that's 20 years, 30 years or longer. For an adjustable rate mortgage, the rate will change based on prevailing interest rates at various intervals.
Either way, you should be able to find your current interest rate in your mortgage paperwork or through your bank's online lending site. You can also check to see if your mortgage statement specifies how much of the current month's payment is attributed to interest. If it doesn't, you can make that calculation yourself.
Mortgage Interest Payment Calculator Tools
One way to find out how much interest you'll owe in a given month, over the life of the mortgage or during other time periods is to use a mortgage interest payment calculator, such as the mortgage and interest calculator provided by Nerdwallet. These are computer programs that you can find on numerous financial news and information sites. Some mortgage lenders may also provide one on their websites.
To use one of these tools, follow the instructions to enter your current mortgage principal amount and annual interest rate. Find these numbers in your mortgage documentation. Then, follow the instructions to calculate your monthly, annual or lifetime interest payments.
If you're putting any confidential information into a mortgage amortization calculator, make sure that you trust the organization running it and that you're confident that you don't have any malware on your device. Only enter the data in a secure place where nobody is looking over your shoulder.
Calculating the Numbers Yourself
If you don't want to use a premade calculator, you can do the math yourself with a pocket calculator, a calculator app or a spreadsheet program.
First, you'll want to compute your monthly interest rate. This is found by dividing your annual interest rate by 12, since there are 12 monthly payments in a year. For example, if your annual interest rate is 6 percent, your monthly interest rate is 6 / 12 = 0.5 percent. Once you have that rate, determine how much principal is currently owed on your mortgage. You should be able to see that on your most recent mortgage statement or through an online banking site or app.
Then, multiply the principal amount by the monthly interest rate to get the monthly interest amount. If the principal is $200,000 and the monthly interest rate is 0.5 percent, for example, the monthly interest amount is $200,000 * (0.5 / 100) = $200,000 * (0.005) = $1,000.
Your monthly mortgage payment minus the interest portion is the amount of principal you are paying down in that particular month.
- For a full view of your entire loan amortization, use the Bankrate.com mortgage calculator (see Resources). Plug in your loan balance, interest rate and time to payoff -- most loans are designed for 30-year payoff -- then play with the numbers a bit to see how extra principal payments would accelerate repayment. In the case of the hypothetical loan, a one-time principal payment of $1,500 -- only one percent of the balance -- would reduce the time to payoff by 18 months and save around $15,000 in interest.
Steven Melendez is an independent journalist with a background in technology and business. He has written for a variety of business publications including Fast Company, the Wall Street Journal, Innovation Leader and Ad Age. He was awarded the Knight Foundation scholarship to Northwestern University's Medill School of Journalism.