Everyone knows that when you first get a mortgage, most of the monthly payment goes to pay the interest and not to pay down the loan principal. But how much exactly goes towards the interest each month?
Here's how to figure it out without a calculator - it's really pretty easy.
Mortgage interest is simple interest, meaning that you only pay interest on the actual loan balance. At the end of the month, you owe interest on whatever the balance was on your mortgage at the beginning of that month.
To calculate how much of your mortgage payment is going towards interest, multiply the loan balance by the interest rate, and then divide that number by 12. You divide by 12 because the interest rate is an annual rate, but you pay your mortgage each month, or 12 times a year.
Here's an example. Let's assume your loan balance is $200,000 and your interest rate is 4%. To figure out how much of your next payment is going to pay interest, multiply 200,000 by 4%, and then divide by 12.
200,000 x 0.04 = 8,000. Then divide that number by 12 to get the monthly amount due. 8,000 / 12 = $666.67
So for that month, you are paying $666.67 in interest.
If you'd like to get an amortization calculator to figure out how much the balance will go down each month, just give us a call and we'll send it over to you.
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