When you begin paying a mortgage, you're usually paying a fairly big portion in interest payments. Later in the life of the loan, you'll usually pay a smaller amount in interest, since there will be less loan balance to incur those interest charges. You can calculate the portion of mortgage principal and interest by knowing your monthly interest rate and the balance on the loan. Show
TL;DR (Too Long; Didn't Read)Multiply your outstanding mortgage balance by your monthly interest rate to see how much interest you are paying that month. The rest of your monthly payment is principal. Understanding Mortgage Principal and InterestWhen you take out a mortgage loan to buy a home or pretty much any other type of commercial loan, the financial institution you're borrowing from isn't lending to you out of the goodness of its heart. The bank or other institution is looking to make money, and that comes from charging you interest, which is almost always proportional to how much you have outstanding on the loan. The initial loan amount is called the principal of the loan, and each monthly payment you make on your mortgage will include a portion paying interest and a portion paying principal. Generally with a fixed-rate mortgage, you will pay the same payment amount over the course of the loan. Early on after you take out the mortgage, a large portion of your payments each month will be interest because there is still a lot of principal remaining on the loan to incur interest. As you gradually pay off the loan, a greater portion of each month's payment will be principal. Calculate Principal and Interest FormulaYou may be able to see a breakdown of how much you're paying in interest and principal on your mortgage statement or through your lender's online banking site. If you don't see it, you can use a relatively simple formula to calculate the number yourself. Take your total outstanding balance on your mortgage (or any other loan). Then, take your annual interest rate and divide by 12 to find your monthly interest rate, since there are 12 months in a year. Multiply the balance by the monthly rate to find your current monthly interest payment. Subtract the monthly interest payment from your total monthly payment. Also subtract any special amounts paid for things like property tax, homeowners' insurance or other costs. The rest of your monthly payment is the principal. Working an ExampleFor example, if you owe $200,000 on your mortgage and your annual interest rate is 6 percent, or 0.06, your monthly interest rate is 0.5 percent or 0.005. Multiply $200,000 by 0.005 to get $1,000. If your total monthly payment is $1,500, you know that $1,000 is going to interest and the other $500 is going to principal. Using a Mortgage CalculatorYou can find mortgage calculator tools on many banking and financial information websites that will do these computations for you, such as this loan amortization calculator from Credit Karma. You'll normally just have to plug in your total balance, interest rate and monthly payment to find how much is going to interest. Some calculators may also tell you how much you will pay in interest over the life of the loan and how much you can save by paying more than your required monthly payment. Remember that some loans have prepayment penalties if you pay them early, so make sure you understand the particular terms of your loan. Working With Adjustable-Rate MortgagesSome mortgages have adjustable rates, meaning they fluctuate over the life of the loan in accordance with prevailing interest rates. You can use the current rate and payment to figure out how much you're paying in interest during a particular month, but make sure to use the up-to-date rate. The amount you pay each month may vary with an adjustable-rate mortgage. References Resources Writer Bio 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. Insider's experts choose the best products and services to help make smart decisions with your money (here’s how). In some cases, we receive a commission from our our partners, however, our opinions are our own. Terms apply to offers listed on this page.
LoadingSomething is loading. Thanks for signing up! Access your favorite topics in a personalized feed while you're on the go. More often than not, a homeowner who borrowed money to buy a house is making one lump-sum monthly payment to their mortgage lender. But while it may be called the monthly mortgage payment, it includes more than just the cost of repaying their loan and interest. For many of the millions of American homeowners carrying a mortgage, the monthly payment also includes private mortgage insurance, homeowners insurance, and property taxes. This is known as PITI: principal, interest, taxes, and insurance. It's possible to estimate your total monthly payment by hand using a standard formula, but it's often easier to use an online mortgage calculator. Either way, here's what you'll need: 1. Determine your mortgage principalThe initial loan amount is referred to as the mortgage principal. For example, someone with $100,000 cash can make a 20% down payment on a $500,000 home, but will need to borrow $400,000 from the bank to complete the purchase. The mortgage principal is $400,000. If you have a fixed-rate mortgage, you'll pay the same amount each month. With each monthly mortgage payment, more money will go toward your principal, and less will go toward paying interest. (To learn more about how this process works, check out an example amortization schedule.) Read more: The average monthly mortgage payment by state, city, and year 2. Calculate the monthly interest rateThe interest rate is essentially the fee a bank charges you to borrow money, expressed as a percentage. Typically, a buyer with a high credit score, high down payment, and low debt-to-income ratio will secure a lower interest rate — the risk of loaning that person money is lower than it would be for someone with a less stable financial situation. Lenders provide an annual interest rate for mortgages. If you want to do the monthly mortgage payment calculation by hand, you'll need the monthly interest rate — just divide the annual interest rate by 12 (the number of months in a year). For example, if the annual interest rate is 4%, the monthly interest rate would be 0.33% (0.04/12 = 0.0033). 3. Calculate the number of paymentsThe most common terms for a fixed-rate mortgage are 30 years and 15 years. To get the number of monthly payments you're expected to make, multiply the number of years by 12 (number of months in a year). A 30-year mortgage would require 360 monthly payments, while a 15-year mortgage would require exactly half that number of monthly payments, or 180. Again, you only need these more specific figures if you're plugging the numbers into the formula — an online calculator will do the math itself once you select your loan type from the list of options. 4. Find out whether you need private mortgage insurancePrivate mortgage insurance (PMI) is required if you put down less than 20% of the purchase price when you get a conventional mortgage, or what you probably think of as a "regular mortgage." Most commonly, your PMI premium will be added to your monthly mortgage payments by the lender. The exact cost will be detailed in your loan estimate, but PMI typically costs between 0.2% and 2% of your mortgage principal. Oftentimes, PMI can be waived once the homeowner reaches 20% equity in the home. You also may pay a different type of mortgage insurance if you have another mortgage, such as an FHA mortgage. 5. Consider the cost of property taxesA monthly mortgage payment will often include property taxes, which are collected by the lender and then put into a specific account, commonly called an escrow or impound account. At the end of the year, the taxes are paid to the government on the homeowners' behalf. How much you owe in property taxes will depend on local tax rates and the value of the home. Just like income taxes, the amount the lender estimates the homeowner will need to pay could be more or less than the actual amount owed. If the amount you pay into escrow isn't enough to cover your taxes when they come due, you'll have to pay the difference, and your mortgage payment will likely increase going forward. You can typically find your property tax rate on your local government's website. 6. Consider the cost of homeowners insuranceAlmost every homeowner who takes out a mortgage will be required to pay homeowners insurance — another cost that's often baked into monthly mortgage payments made to the lender. There are eight different types of homeowners insurance, so when you buy a policy, ask the company about which type of coverage is best for your situation. The insurance policies with a high deductible will typically have a lower monthly premium. 7. Calculate your monthly paymentUse our free mortgage payment calculator to find out how much you'll pay each month: Mortgage CalculatorLength of loan (years) Interest rate % $1,161 Your estimated monthly payment
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Chevron iconIt indicates an expandable section or menu, or sometimes previous / next navigation options. Chevron iconIt indicates an expandable section or menu, or sometimes previous / next navigation options. If you want to do the math by hand, you can calculate your monthly mortgage payment, not including taxes and insurance, using the following equation: M = P [ i(1 + i)^n ] / [ (1 + i)^n – 1] P = principal loan amount i = monthly interest rate n = number of months required to repay the loan Once you calculate M (monthly mortgage payment), you can add in the monthly property tax and homeowners insurance premium, if you have them. These are fixed costs that aren't determined by how much you borrow from the bank, so they can easily be added to the monthly cost. Mortgage and refinance rates by stateCheck the latest rates in your state at the links below. Alabama
Tanza is a CFP® professional and former correspondent for Personal Finance Insider. She broke down personal finance news and wrote about taxes, investing, retirement, wealth building, and debt management. She helmed a biweekly newsletter and a column answering reader questions about money. Tanza is the author of two ebooks, A Guide to Financial Planners and "The One-Month Plan to Master your Money." In 2020, Tanza was the editorial lead on Master Your Money, a yearlong original series providing financial tools, advice, and inspiration to millennials. Tanza joined Business Insider in June 2015 and is an alumna of Elon University, where she studied journalism and Italian. She is based in Los Angeles. Read more Read less
Laura Grace Tarpley, CEPF Personal Finance Reviews Editor Laura Grace Tarpley (she/her) is a personal finance reviews editor at Insider. She edits articles about mortgage rates, refinance rates, lenders, bank accounts, wealth building, and borrowing and savings tips for Personal Finance Insider. She was a writer and editor for Insider's "The Road to Home" series, which won a Silver award from the National Associate of Real Estate Editors. She is also a Certified Educator in Personal Finance (CEPF). She has written about personal finance for over six years. Before joining the Insider team, she was a freelance finance writer for companies like SoFi and The Penny Hoarder, as well as an editor at FluentU. You can reach Laura Grace at . Learn more about how Personal Finance Insider chooses, rates, and covers financial products and services » Read more Read less How do you calculate principal and interest on a mortgage?Lenders multiply your outstanding balance by your annual interest rate, but divide by 12 because you're making monthly payments. So if you owe $300,000 on your mortgage and your rate is 4%, you'll initially owe $1,000 in interest per month ($300,000 x 0.04 ÷ 12).
What is the formula for calculating principal and interest?The new, rearranged formula would be P = I / (RT), which is principal amount equals interest divided by interest rate times the amount of time.
What is the formula for mortgage calculation?These factors include the total amount you're borrowing from a bank, the interest rate for the loan, and the amount of time you have to pay back your mortgage in full. For your mortgage calc, you'll use the following equation: M = P [ i(1 + i)^n ] / [ (1 + i)^n – 1].
How do you calculate interest and principal interest?How to calculate interest rate. Step 1: To calculate your interest rate, you need to know the interest formula I/Pt = r to get your rate. ... . I = Interest amount paid in a specific time period (month, year etc.). P = Principle amount (the money before interest). t = Time period involved.. r = Interest rate in decimal.. |
Formula to calculate principal and interest on a mortgage
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