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The interest on a mortgage, personal loan or other unsecured obligation can quickly add up to a major expense for most consumers. Being able to calculate the amount of interest you will pay can help you budget your funds more accurately for fixed and variable expenses. Additionally, some mortgages are issued as interest-only, making your interest payment amount doubly important. Therefore, it is important to understand how to calculate interest payments for any kind of debt.



  1. 1
    Gather the details of your loan.
    • You will need the total principal owed, the interest rate and accrual period and the term of the loan.
  2. 2
    Divide the annual interest rate by the number of times that interest is accrued in 1 year to calculate interest.
    • For instance, an annual percentage rate of 6 percent that is accrued monthly would be .06 / 12 = .005, for a periodic interest rate of .5 percent.
  3. 3
    Multiply the principal balance owed by the periodic interest rate.
    • In this example, we will assume a $10,000 loan payable over 5 years with 6 percent interest accrued monthly.
    • The $10,000 principal multiplied by the periodic interest rate of .5 percent is equal to a monthly interest payment of $50.
  4. 4
    Calculate the total principal and interest payment for the loan.
    • It is easiest to do this in Microsoft Excel, using the PMT function.
    • Type this formula into the function bar in Excel and substitute your loan specifics for the variables: =PMT(Interest rate,Number of periods, principal balance as a negative,0). In the example above, the formula would look like "=PMT(.005,60,-10000,0)," with the interest rate of .005, 60 total payment periods (12 months per year over 5 years), and the principal balance of $10,000 presented as a negative amount.
    • The final zero in the formula simply means that there will be a $0 principal balance at the end of the loan term.
    • The formula returns a total principal and interest payment of $193.33.
  5. 5
    Figure the total interest that will be paid over the life of the loan.
    • Multiply the payment by the number of periods in the loan, which, in this example, would be $193.33 x 60 = $11,599.80.
    • Subtract the beginning principle amount from the total of all payments; $11,599.80 - $10,000 = $1,599.80 is the total interest paid on this loan.

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  • You can get a very good estimate of the total interest paid over the life of the loan by multiplying the principle by the periodic interest rate and then by the number of payment periods. The number will not be exact, as it is in Excel, due to the fraction of a penny that is rounded off to arrive at a dollar amount.

Things You'll Need

  • Loan details
  • Computer with Excel or calculator

Article Info

Categories: Credit and Debt

Recent edits by: MacFlack245, Ccope, Mec1025

In other languages:

Español: Cómo calcular el pago de intereses, Русский: рассчитать процентные платежи


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