How to Calculate Interest Paid Over the Life of a Mortgage
The mortgage-paying population rarely takes 30 years (in a 30-year mortgage) to pay off a mortgage, since most do not own a particular home that long. Homes are bought and sold on an as-need basis. Young, growing families outgrow smaller homes, then sell them to buy larger ones. Empty-nesters who find themselves living in a big house downsize when all the kids are gone. If you stay in your 30-year mortgage for the entire 30 years, you might be astounded at how much interest you will pay for that loan.
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Things You'll Need
- Correct loan amount
- Interest rate
- Principal and interest payment
- Calculator
- Pen and paper
Instructions
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1
Locate your correct loan amount. This can be found on your HUD 1 (closing statement). You will also find this amount on your promissory note in your closing file.
Also on your promissory note, find your interest rate, and monthly principal and interest payment as well. You can also obtain this information by calling your lender.
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2
Using your principal and interest (P&I) payment, multiply it by 360 payments, which is 30 years of payments.
Example: $100,000 loan for 30 years at a 5 percent interest rate will create a $536.82 monthly payment. (This amount does not include taxes or homeowners insurance). Multiply $536.82 by 360 months. It equals $193,255.20.
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3
Subtract the loan amount from the total you arrive at in Step 1. In the example above, you would subtract $100,000 from $193,255.20, ending with $93,255.20. This represents the amount of interest that is paid over a 30-year amortized loan, which is commonly how mortgage principal and interest (P&I) is paid.
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Tips & Warnings
An amortization schedule is a payment schedule that is set up to allow for larger increments of interest to be paid in the beginning years of the loan, slowly decreasing each month. The principal balance in an amortized loan is decreased very slowly in the beginning years, with the principal amount increasing each month over the years until the loan is paid off.
Interest paid on a mortgage is tax-deductible.
Amortization schedules do not take taxes or insurance into consideration. These are additional payments that your mortgage company may require you to pay each month.
There is no exact way to calculate how much interest is paid over the life of an adjustable-rate loan since the rates will change according to the regulations set up in the promissory note.
References
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