How are interest amounts applied to mortgage payments?

2 Responses to “How are interest amounts applied to mortgage payments?”

1. Kathryn says:

   September 22, 2010 at 1:40 am

   My best understanding is that whatever your principal balance is at the beginning of the month is multiplied by the current interest rate/12 (which gives you a monthly rate). Whatever figure you get is that month’s interest. Anything left over from your payment is applied to the principal.

   For example, let’s say your current balance is $100,000, your interest rate is 6%, and your payment is $800. Your interest for the month is $500 ($100,000 * 6%/12); so the principal reduction is $300.

   The longer you have the loan, the lower your principal balance becomes; so the less interest you pay (and more of each payment is applied to the principal)
2. Tony Q says:

   September 22, 2010 at 2:15 am

   mortgage amortization
   m=1 annually compounded
   m=2 semi=annual compounded (used in canada)
   m=4 quarterly compounded
   m=12 monthly compounded (used in united state)
   m=52 weekly compounded
   m=365 daily compounded

   yr= no. of years amortized normally 25
   n= m * yr
   %int= percent annual interest
   int= %int / 100 / m
   pv= outstanding mortgage balance

   F1= interest portion of the bi-weekly payment (decreases)
   F1= pv * [(1 + int) ^ (m / 26) - 1]
   24= there are 26 bi-weekly in a year (used 12 if the payment is monthly)

   F2= equal payment factor
   F2= [1 – (1 + int) ^ ( – n )

   pmt= bi-weekly equal payment
   pmt= F1 / F2

   F3= principal portion of the bi-weekly payment
   F3= pmt – F1 (increases)

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