Three Ways to Calculate Your Mortgage Interest

Establishing a mortgage to purchase or refinance a home can be a very confusing jumble of numbers especially if you are not sure what the numbers being thrown at you mean. Since 90 percent of homes purchased in the United States are purchased using some kind of mortgage financing it is important to understand mortgages, how they work, and what your options are when establishing a mortgage of any kind. Since there are a variety of mortgage financing options available, which type of mortgage you have will directly relate to how you assess how much you are paying in mortgage interest. The good news is that the interest portion of your mortgage is generally fully tax deductible, so understanding the interest portion of your mortgage will also help you to figure out how much you may be able to write off on your tax returns.

Fully Amortized Mortgages

Fully amortized mortgages, usually 15- and 30-year fixed rate mortgages, require that a principal and interest payment is made each month. There are several ways to determine what your monthly mortgage payment will be, how much of this payment is interest, and how much of the payment is actually being applied to the principal of your mortgage. There are an abundance of helpful mortgage calculators online that will help you calculate the interest that you are paying each month on your mortgage. Some calculators will also calculate the total amount of interest that you will have paid by the time that your mortgage is paid off. One specific calculator that will help you run a payment schedule can be found on the Fannie Mae website.

Calculating Interest Only Mortgages

Another type of mortgage available to borrowers is the interest only mortgage. This type of loan product is not fully amortized. It requires a minimum payment each month that consists solely of interest. This makes it very easy to calculate the interest portion of your monthly mortgage payment because it is a simple interest calculation.

1. Multiply the mortgage balance by your mortgage rate.
2. Divide this number by 12 (the amount of payments or months that there are in a year)
3. This is your monthly interest payment

Find a Mortgage Advisor

If you are not the do-it-yourself type mortgage shopper, you can contact your local mortgage lender to speak with a mortgage advisor. Your mortgage advisor will give you advice on the mortgage options that are best for you based on your personal financial situation. The mortgage advisor will also be able to run amortization schedules that detail out how much you are paying in mortgage interest each month, and how much interest you will pay over the life of the loan.