When you make your monthly mortgage payment, only a portion of that money actually goes toward paying off the loan. Part of the payment is interest on the money you've borrowed; if it's still fairly early in the term of your mortgage, interest will be a huge chunk of your payment. That makes it hard to figure out at a glance just how much is left on your mortgage.
Probably the simplest way to find out how much is left on your mortgage is to check your mortgage statement. Look for an item labeled "principal balance." That's how much you actually owe, and the interest you pay is charged on that amount. If your balance isn't on your statement, call your mortgage company and ask for your principal balance. Or you can do the math yourself using the same formula the lender used to determine your payment.
To calculate the principal balance on your mortgage, you'll need three pieces of information. First is the amount of your current monthly payment for principal and interest. Many homeowners pay their property taxes and hazard insurance premiums as part of their mortgage payments; if you do this, don't include the tax and insurance portions in the calculations. The second piece of data is the annual interest rate you're paying on your mortgage. If you're in a fixed-rate mortgage, it's the rate you've been paying all along; if your mortgage has an adjustable rate, it's whatever you're paying right now. The final bit of required information is how many months remain on your mortgage.
Lenders use a special formula called an amortization formula to set your monthly payment. This formula can also be used to determine your principal balance at any point. The formula goes like this:
B = (PMT/R) x (1 - (1/(1+R)^N)
In the formula, "B" is the principal balance, "PMT" is the monthly payment for principal and interest and "N" is the number of months remaining. "R" is your interest rate, but it's expressed as a monthly rate rather than an annual one. To get the monthly rate, simply take your annual rate, expressed as a decimal, and divide it by 12. If your annual rate is 6 percent, for example: R = 0.06/12 = 0.005.
Say you have a 30-year mortgage with a monthly payment of $1,450. Your annual rate is 6 percent and you have made 10 years' worth of payments, so you have 240 payments left. Therefore, PMT is 1,450, N is 240 and R is 0.06/12, or 0.005. Plug them into the formula:
B = (1450/0.005) x (1 - 1(1.005^240)) B = 290,000 x 0.6979 B = 202,391 You have about $202,391 left on your mortgage. That figure is slightly off due to rounding for the sake of illustration. Using a calculator gives you an exact figure: $202,392.12.
Amortization calculators widely available on the Internet are designed for people planning to purchase a home, but you can use them to determine your principal balance, too. On these calculators, users enter the mortgage amount they want to borrow, their annual interest rate and the length of their mortgage, and the calculator figures the monthly payment. To use one to find your current balance, enter your interest rate and the number of months remaining on your mortgage. Then use trial and error in the space for the mortgage amount. Tweak this figure until the payment produced by the calculator matches your own payment. When it does, the figure you've entered is your current balance.
- Corporate Finance: The Core, Second Edition; Jonathan Berk and Peter DeMarzo
- Bankrate: Mortgage Amortization Calculator
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