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Monthly Interest Formula:
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Monthly interest calculation determines the interest portion of a home loan payment for a given month. It's calculated based on the outstanding principal balance and the monthly interest rate.
The calculator uses the simple interest formula:
Where:
Explanation: This formula calculates the interest portion of your mortgage payment for the current month based on the remaining loan balance.
Details: Understanding how monthly interest is calculated helps homeowners track how much of their payment goes toward interest vs. principal, plan for extra payments, and understand the true cost of their mortgage over time.
Tips: Enter the current outstanding principal balance in dollars and the monthly interest rate as a decimal (divide annual rate by 12 and convert percentage to decimal). Both values must be positive numbers.
Q1: How do I convert annual interest rate to monthly?
A: Divide the annual percentage rate by 12 and then by 100. For example, 6% annual rate = 6/12/100 = 0.005 monthly rate.
Q2: Why does the interest portion change each month?
A: As you pay down the principal, the outstanding balance decreases, which reduces the amount of interest calculated each subsequent month.
Q3: How does extra payment affect monthly interest?
A: Extra payments reduce the principal balance faster, which decreases the interest portion of future payments and shortens the loan term.
Q4: Is this calculation the same for all mortgage types?
A: This calculation applies to standard fixed-rate mortgages. Adjustable-rate mortgages and interest-only loans have different calculation methods.
Q5: What's the difference between interest and APR?
A: Interest rate is the cost of borrowing the principal, while APR includes both interest and other loan costs, providing a more comprehensive cost comparison.