How to Calculate an Interest Rate

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An interest rate is generally a percentage of the amount of a loan that a person is borrowing. Use an amortization schedule to calculate interest rates with help from a financial specialist in this free video on interest rates and loans.

Part of the Video Series: Interest Rates
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Video Transcript

Hi, this is Matt McKillen with Innovative Financial Group. The question posed today is how to calculate an interest rate. Well it's very simple, it's generally a percentage of the amount of a loan that you're borrowing or the principal of the loan. For example if you're paying 10% interest on a 100,000 loan, well 10% interest would be 10,000 dollars, that's 10% of the amount you borrowed. Now how to calculate how that's repaid is you would take that 10,000 dollars, that 10% interest that you're owed on an annual basis and you would divide it by 12 monthly payments. So in doing so that way you can figure out exactly how much of the cost of that money is based in interest repaid on an annual basis. So that's one of the ways to calculate interest, obviously the most common way to calculate interest is just whatever your note rate is on the mortgage you can look at an amortization schedule and you can see what your cost of borrowing the money is over the life of the loan. Again, my name is Matt McKillen and I'm with Innovative Financial Group.

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