Use this Mortgage Interest Calculator to quickly determine your estimated monthly loan payments, the total interest paid over the life of the loan, and the full repayment amount. Simply input your principal loan amount, annual interest rate, and loan term in years to get instant results.
Mortgage Interest Calculator
Mortgage Interest Calculator Formula
The standard formula used to calculate a fixed monthly mortgage payment (M) is:
M = P [ i (1 + i)ⁿ / ((1 + i)ⁿ - 1) ]
Where:
- M = Monthly Payment
- P = Principal Loan Amount
- i = Monthly Interest Rate (Annual Rate / 12)
- n = Total number of payments (Term in Years × 12)
Formula Sources:
Investopedia: Mortgage Payment Formula Explained, Consumer Financial Protection Bureau (CFPB)
Variables Explained
- Loan Principal (P): The total amount of money borrowed from the lender. This excludes any down payment.
- Annual Interest Rate (R): The nominal yearly rate of interest expressed as a percentage. This rate is usually converted to a monthly rate for calculation.
- Loan Term (N): The total duration over which the loan is scheduled to be repaid, expressed in years. Common terms are 15, 20, or 30 years.
- Monthly Payment (M): The fixed amount paid by the borrower to the lender each month, which covers both principal and interest.
Related Calculators
What is Mortgage Interest?
Mortgage interest is the cost of borrowing money to purchase a home, expressed as an annual percentage of the outstanding loan balance. It represents the lender’s profit for extending the credit. Unlike other types of debt, mortgage interest payments are heavily weighted at the beginning of the loan term, meaning a larger portion of your early monthly payments goes towards interest rather than reducing the principal.
The total amount of interest paid over the life of a 30-year mortgage can easily exceed the original principal amount, which is why understanding the interest rate’s impact is crucial. Factors like the credit score, market conditions, and the loan type (e.g., fixed-rate vs. adjustable-rate) all influence the final rate offered by a lender.
How to Calculate Mortgage Interest (Example)
Let’s calculate the monthly payment for a $200,000 loan at 4% annual interest over 15 years.
- Determine the Variables: Principal (P) = $200,000. Annual Rate (R) = 4% (0.04). Term (Y) = 15 years.
- Calculate Monthly Rate (i): Divide the annual rate by 12: i = 0.04 / 12 = 0.003333.
- Calculate Total Payments (n): Multiply the term by 12: n = 15 × 12 = 180 months.
- Apply the Formula: Substitute these values into the monthly payment formula: M = P [ i (1 + i)ⁿ / ((1 + i)ⁿ – 1) ].
- Solve for M: After calculation, the monthly payment will be approximately $1,479.38. The total interest paid would be ($1,479.38 \times 180) – $200,000 = $66,288.40.
Frequently Asked Questions (FAQ)
Is mortgage interest tax deductible?
In many countries, including the US, interest paid on a mortgage secured by a primary or secondary home may be tax deductible, subject to certain limits and conditions set by tax laws. It is always recommended to consult a tax professional.
What is an amortization schedule?
An amortization schedule is a table detailing each periodic payment on a loan, showing how much of the payment is applied to the interest and how much is applied to the principal balance, until the loan is paid off at the end of its term.
Does a shorter loan term save me money?
Yes. While the monthly payment for a shorter term (like 15 years) is higher, you pay significantly less total interest because you are paying off the principal much faster, reducing the time interest can accrue.
What is the difference between APR and interest rate?
The interest rate is the cost of borrowing the principal loan amount. The Annual Percentage Rate (APR) is a broader measure that includes the interest rate plus other costs, such as broker fees, discount points, and other charges, providing a truer estimate of the annual cost of the loan.