# Can you tell me how to calculate interest payments on my mortgage?

Answer:Calculating interest payments on a mortgage becomes easy once you have a payment schedule. As there are a variety of mortgage types, having a payment schedule is the only common way to find out how much interest you pay in a month, in a year or over the whole mortgage period.

To calculate the interest payments on a mortgage you need to first know the following:

- The type of mortgage (fixed rate, ARM, buy down etc.)
- The value of the mortgage
- The interest rate
- The payback period

Once you have this preliminary information you can proceed to creating a monthly mortgage payment schedule. That schedule will give you your monthly interest payment as well.

## Example of Calculating Interest Payments

Consider a fixed rate mortgage worth $80,000 at 7% interest to be paid back in 10 years. To create a payment schedule we will use MS Excel. By using the PMT()* function in Excel we get monthly payment to be $929.

Now we break this monthly payment
into its two constituents that are the **monthly
interest** and the **monthly
amortization**:

- Monthly interest is calculated by multiplying the monthly interest rate with the previous month's balance.
- Monthly amortization is calculated by subtracting the monthly interest from the monthly payment

We can now create a table** in Excel similar to the following:

Year | Month | Principal | Monthly Payment | Interest Payment | Amortization |
---|---|---|---|---|---|

1 | 0 | $80,000 | $0 | $0 | $0 |

1 | 1 | $79,538 | $929 | $467 | $462 |

1 | 2 | $79,073 | $929 | $464 | $465 |

.. | .. | .. | .. | .. | .. |

5 | 58 | $48,209 | $929 | $285 | $644 |

5 | 59 | $47,561 | $929 | $281 | $648 |

5 | 60 | $46,910 | $929 | $277 | $651 |

.. | .. | .. | .. | .. | .. |

10 | 118 | $1,842 | $929 | $16 | $913 |

10 | 119 | $923 | $929 | $11 | $918 |

10 | 120 | $0 | $929 | $5 | $923 |

****** If you have MS Excel, you can find Monthly Payment in
a minute. All you need to do is use the function PMT(i,n,P) where, i is the monthly interest rate, n is the number
of months of the loan and P is the total value of the mortgage*

******* Due to the length of
the table we will only show parts of it*

Not at all | Definitely |

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