How To Calculate Interest On Fixed Rate Mortgage

If you own a home, or have thought of purchasing a home, you likely want to know how to calculate interest on a fixed rate mortgage. Fortunately, it is easy to calculate interest on fixed rate mortgages and does not require significant skill in math. To calculate interest on fixed rate mortgages requires a little bit of time, a calculator, and your mortgage documentation.

1. Determine the specifics about your mortgage. To calculate interest on a fixed rate mortgage, you must determine your mortgage term (in months), your monthly principal interest payments, and the original amount of the mortgage. If you do not know these figures, they are laid out in the mortgage documentation you signed when you closed on your home. Typical mortgage terms are 30 years (360 months), twenty years (240 months), and fifteen years (180 months).
2. Calculate your total principal and interest payments over the course of the mortgage. Multiply your monthly principal and interest payments by the term of the mortgage in months to calculate the total principal and interest payments of the entire term of the mortgage. For example, if your monthly payment on a 30-year mortgage was $1,281.30 your total principal and interest payments would be $461,268 ($1,281.30 x 360 months = $461,268).
3. Subtract the original mortgage amount from this calculated value. To calculate interest on fixed rate mortgages, simply the mortgage loan amount from the calculated interest and principal payments. Continuing the example above, if this was a $200,000 mortgage, the interest over the life of the mortgage would be $261,268 ($461,268 - $200,000 = $261,268).
4. Be aware that most of this interest is paid at the beginning of the mortgage. Fixed rate mortgage payments are amortized, meaning that most of the monthly payment is interest in the early years of the mortgage and most of the monthly payment is principal in the later years of the mortgage.

It is easy to calculate interest on fixed rate mortgages, and every homeowner should do so. This gives an idea as to how much of their money will go toward interest over the life of the loan and increase a homeowner’s fiscal awareness.