Use this reliable calculator to quickly determine your estimated monthly mortgage payment and the total interest you will pay over the life of your loan. Understand the true cost of borrowing and how interest rates affect your budget.
Mortgage Interest & Payment Calculator
Calculation Result
Detailed Amortization Steps
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How to Calculate Mortgage Interest Formula
The monthly payment (M) is calculated using the following loan amortization formula, which incorporates the principal and interest:
M = P [ i(1 + i)ⁿ / ((1 + i)ⁿ - 1) ]
Where:
- $P$ = Principal Loan Amount
- $i$ = Monthly Interest Rate (Annual Rate / 12)
- $n$ = Total Number of Payments (Loan Term in Years × 12)
Total Interest Paid (TI) = $(M \times n) – P$
Formula Source: Investopedia | NerdWallet
Variables Explained
- Loan Amount (Principal): The total amount of money borrowed for the mortgage.
- Annual Interest Rate (%): The yearly cost of borrowing money, expressed as a percentage. This is divided by 12 to get the monthly rate.
- Loan Term (Years): The duration over which the loan is scheduled to be fully repaid. Common terms are 15 or 30 years.
What is how to calculate mortgage interest?
Mortgage interest is the cost paid to a lender for borrowing the principal loan amount, typically expressed as an annual percentage rate (APR). This interest is not paid all at once but is included in your regular monthly mortgage payments over the loan’s term. In the early years of a mortgage, a significantly larger portion of your monthly payment goes toward interest, while later years see more funds directed toward reducing the principal balance.
Understanding how to calculate mortgage interest is crucial because it helps potential homeowners grasp the true total cost of a loan. The total interest paid can often be equal to or even exceed the original loan amount, especially with long terms like 30 years and higher interest rates. This calculator provides a clear estimate of this total interest.
How to Calculate Mortgage Interest (Example)
- Gather Variables: Assume a loan amount (P) of $200,000, an annual rate (R) of 6.0%, and a term (T) of 30 years.
- Calculate Monthly Rate (i): $i = 6.0\% / 100 / 12 = 0.005$.
- Calculate Total Payments (n): $n = 30 \text{ years} \times 12 = 360 \text{ payments}$.
- Apply the Formula: Substitute $P, i,$ and $n$ into the monthly payment formula to find the Monthly Payment (M). In this case, M would be approximately $1,199.10.
- Calculate Total Interest: Multiply the monthly payment by the total number of payments, then subtract the principal: $\text{Total Paid} = \$1,199.10 \times 360 = \$431,676. \text{ Total Interest} = \$431,676 – \$200,000 = \$231,676$.
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Frequently Asked Questions (FAQ)
A: The calculation only determines the Principal and Interest (P&I) payment. It does not include Property Taxes, Homeowner’s Insurance, or HOA fees (the Escrow portion). Your actual monthly payment (PITI) will be higher.
Q: How does a shorter loan term affect total interest?A: A shorter term (e.g., 15 years vs. 30 years) drastically reduces the total interest paid. Although the monthly payment will be higher, the loan is paid off much faster, giving the interest less time to accrue.
Q: What is the difference between principal and interest?A: The principal is the original amount you borrowed. Interest is the fee charged by the lender for the use of that money. Each payment is split between covering the interest due and reducing the principal balance.
Q: Can I use this for non-mortgage loans?A: Yes, this formula applies to any fully amortizing installment loan, such as car loans or personal loans, provided the payment frequency is monthly.