Getting a mortgage and buying a home is one of the biggest decisions of your life. It’s important that you understand every part of that decision, including the interest rate that’s attached to the whole deal and how it works. That’s why it’s important to take the time to really consider how the interest on a mortgage is calculated and how that affects the total cost of the home.
Find Your Monthly Interest Rate
The first step to determining what the total interest paid toward your new home will be is to find the monthly interest rate. You do this by dividing the yearly interest rate, or the rate that your lender tells you, by 12. So, for an annual interest rate of .04 the monthly rate would be .003333%. Once you have the monthly interest rate you can go ahead and calculate your first mortgage payment, and that’s the first step toward finding the total interest costs to you.
Getting Your Mortgage Payment
Now that you have your interest rate, you can use a special equation to find out just what your mortgage payment is going to be each month. To find your mortgage payment you want to follow the below equation.
In this calculation M is equal to the monthly payment, P is your principal amount and r is the monthly interest rate. Plug all the numbers into the equation and you’ll be given your monthly mortgage payment.
Finding Total Interest
After you have your monthly mortgage payment it’s very easy to figure out how much you’re paying out in interest over the life of the loan. Just multiply the payment by 36 for your total amount paid out and then subtract the principal from that amount to get total interest paid over the life of your loan.
Finding Incremental Interest
When you know your monthly payment, you can calculate what part of your payment is towards interest and what part is towards the principal as well. To do this you simply multiply your remaining principle by the monthly interest rate and subtract that amount from your mortgage payment. That amount is your interest for the month, and whatever you pay above the amount goes toward your mortgage.
Using a Mortgage Calculator
While it’s certainly possible to calculate all your interest payments and the total interest by hand, it’s much easier to make use of online mortgage calculators like MortgageCalculator.net and other resources on the internet to do the job. A mortgage calculator gives you a full breakdown of all the information that you could want to know about your mortgage payment, and you just need to know the interest rate, the total principle and the term of the loan to get all the rest of the information.
With a good quality mortgage calculator you can quickly determine what mortgage amounts are affordable and which you should steer clear of. Give the calculator a try today to figure out exactly what sort of mortgage is best for you, or take the time to do it out by hand if you would rather see how the numbers work for yourself.