How to Calculate Monthly Mortgage Interest Rates
Most American mortgages rates amortize annually, meaning once a year. If the mortgage is for $100,000 and the interest rate is 6 percent, at the end of one year (if no payments are made) the interest is $6,000. Most mortgages, however, require payments each month, not just once a year. This causes the amount financed to change each month as the principal paid reduces the loan amount. Converting the interest rate to a monthly rate can help with tracking how much interest should be due as payments are made each month.
Other People Are Reading
Instructions
-
Converting Your Annual Rate to a Monthly Rate
-
1
Examine your mortgage note. Find the exact rate of interest each year.
-
2
Convert the rate into a decimal. Use a calculator and divide the rate by 100. A 5.375 percent interest rate would calculate out to .05375.
-
-
3
Divide the decimal by 12. This will give you the monthly rate of interest. 0.05375 divided by 12 is 0.004479. Multiply this number by 100 to change it back to a standard interest rate. 0.004479x100 = 0.4479 percent.
-
1
Tips & Warnings
When locating your interest rate ensure you use the note, and not the truth-in-lending. Any figure with the term APR is not the same as the actual note rate. Mortgage calculations with APR associated with them include the closing costs as expressed as an interest rate plus the actual interest rate. Good for comparing loans, but not for calculating the true monthly interest rate.
References
- Photo Credit Calculator image by Alhazm Salemi from Fotolia.com
