How to Compute Principal & Interest Payments on a Home

Loans used to purchase homes are called mortgages.

Many mortgages require a monthly payment that will pay off the interest on the loan and the loan principal over the term of the loan. The monthly mortgage payments remain the same, but the portions of the payment that go toward interest and principal change over the term of the loan. You can calculate these portions of you know the interest rate, your monthly payment and how much you owe on your mortgage.

Instructions

1. Figure the monthly interest rate on your mortgage by dividing the annual interest rate by 12. For example, if the annual interest rate equals 7.68 percent, divide 7.68 by 12 to get 0.64.

2. Find the monthly interest rate expressed as a decimal by dividing the monthly interest rate expressed as a percentage by 100. In this example, you would divide 0.64 by 100 to get 0.0064.

3. Compute the amount of interest charged during the month by multiplying the monthly interest rate expressed as a decimal by the outstanding balance of your mortgage. You can find your mortgage balance on your most recent mortgage statement or by contacting your financial institution. In this example, if you had $92,000 remaining on your mortgage, you would multiply 0.0064 by $92,000 to get $588.80.

4. Determine the amount of principal from your monthly payment by subtracting the interest from the monthly payment. Completing the example, if your monthly payment is $900, you subtract $588.80 from $900 to get $311.20 as the portion of your monthly payment that goes toward principal.

References

• Foner Books: How to Calculate Mortgage Amortization