To calculate mortgage interest for one month, multiply your current loan balance by your annual interest rate and divide by 12. A $300,000 balance at 6.5% costs $300,000 × 0.065 ÷ 12 = $1,625.00 in interest that month. Your fixed payment covers that interest first, and whatever is left reduces the balance. Repeat the calculation each month on the new, slightly smaller balance and you have the whole story of your loan.
This guide walks through the monthly calculation, the payment formula, interest by year and total interest, plus the details that trip people up: per diem interest at closing, APR versus rate, and what changes when you prepay.
The monthly interest formula
US fixed-rate mortgages charge simple interest on the outstanding balance once a month. The monthly rate is the annual note rate divided by 12.
Here B is the principal balance before the payment and r is the annual rate as a decimal (6.5% = 0.065). The interest does not compound inside a normal amortizing loan, because each payment covers the full month’s interest. Interest only builds on itself if a payment is missed or the loan is negatively amortizing.
The payment formula
The monthly principal-and-interest payment is set so the loan reaches exactly zero after the last payment:
P is the amount borrowed, i is the monthly rate (r ÷ 12) and n is the number of payments (360 for 30 years). For $300,000 at 6.5% over 30 years:
- i = 0.065 ÷ 12 = 0.0054167
- (1 + i)−360 = 0.14302
- M = $300,000 × 0.0054167 ÷ 0.85698 = $1,896.20
That figure is principal and interest only. Your actual bill usually also includes property tax, homeowners insurance and any mortgage insurance held in escrow, which do not affect the interest calculation. The mortgage calculator adds those items if you want the full monthly cost.
Worked example: the first three payments
Using the same $300,000 loan at 6.5%, each month’s interest is the previous balance × 0.065 ÷ 12:
| Payment | Starting balance | Interest | Principal | Ending balance |
|---|---|---|---|---|
| 1 | $300,000.00 | $1,625.00 | $271.20 | $299,728.80 |
| 2 | $299,728.80 | $1,623.53 | $272.67 | $299,456.12 |
| 3 | $299,456.12 | $1,622.05 | $274.15 | $299,181.97 |
The interest drops by about $1.50 a month at first, and the principal portion rises by the same amount, because the payment never changes. Lenders round to the cent each month, so your servicer’s statement may differ from a spreadsheet by a few cents over time.
Mortgage interest by year
Because the balance falls slowly at first, interest dominates the early years. Here is how the same loan splits each year:
| Loan year | Interest paid | Principal paid | Balance at year end |
|---|---|---|---|
| 1 | $19,401.27 | $3,353.18 | $296,646.82 |
| 5 | $18,408.66 | $4,345.79 | $280,832.93 |
| 10 | $16,745.02 | $6,009.43 | $254,328.38 |
| 15 | $14,444.51 | $8,309.94 | $217,677.42 |
| 20 | $11,263.32 | $11,491.13 | $166,995.85 |
| 25 | $6,864.32 | $15,890.13 | $96,912.49 |
| 30 | $781.30 | $21,973.15 | $0.00 |
Two takeaways. First, in the first five years you pay about $94,605 in interest but reduce the balance by only about $19,167. Second, principal does not overtake interest until payment 233, more than 19 years in. If you plan to sell or refinance within a few years, most of what you paid will have been interest. The amortization calculator produces the full month-by-month schedule, and the guide on how to read an amortization schedule explains each column.
Total interest over the life of the loan
Total interest is everything you pay minus what you borrowed:
For the example, $1,896.20 × 360 = $682,633 in payments, so total interest is about $382,633, more than the original loan. Small rate differences add up quickly:
| Rate (30-year, $300,000) | Monthly payment | Total interest |
|---|---|---|
| 6.0% | $1,798.65 | $347,515 |
| 6.5% | $1,896.20 | $382,633 |
| 7.0% | $1,995.91 | $418,527 |
Half a percentage point is worth roughly $100 a month and $35,000 over 30 years on this loan. That is why paying mortgage points or shopping several lenders can be worthwhile, and why a 15-year vs. 30-year mortgage comparison often surprises people.
Daily (per diem) interest at closing and payoff
Mortgage interest is paid in arrears: your June 1 payment covers May’s interest. That has two practical effects.
- At closing, the lender collects prepaid interest from the closing date to the end of that month. The daily amount is usually the balance × rate ÷ 365. On $300,000 at 6.5% that is $53.42 per day, so closing on the 20th of a 30-day month means about 11 days, or $587.62, of prepaid interest.
- At payoff, the payoff quote includes interest from the last payment date to the payoff date at the same daily rate. That is why payoff figures are only good for a specific date.
Some lenders use a 360-day year for per diem figures, which makes the daily charge slightly higher. Your Closing Disclosure shows the exact method and amount.
Interest rate vs. APR
The rate in the formulas above is the note rate, the one that determines your payment. The APR on your Loan Estimate is higher because it folds in points and certain lender fees, spread over the loan term. The CFPB requires lenders to show both so you can compare offers. Use the note rate to calculate interest and payments; use the APR to compare the overall cost of competing loans. See APR vs. APY for how these annualized rates differ.
Adjustable-rate and interest-only loans
The monthly formula is the same for an adjustable-rate mortgage, but the rate changes at each adjustment and the payment is recalculated on the remaining balance and term. For an interest-only loan, the payment during the interest-only period is simply B × r ÷ 12, so the balance does not fall at all. The interest-only mortgage calculator shows the payment jump when amortization begins.
How extra payments change the interest
Any extra amount you pay goes straight to principal, which lowers next month’s interest and every month after it. Adding $200 a month to the example loan from day one cuts years off the term and saves a large share of the total interest. The guide on how much extra mortgage payments save runs the numbers for several amounts. Before you prepay, confirm that the loan has no prepayment penalty and that the servicer applies the extra to principal rather than holding it for the next payment.
Checklist for calculating your own mortgage interest
- Find your current principal balance and note rate on your monthly statement.
- Multiply the balance by the rate and divide by 12 for this month’s interest.
- Subtract that interest from your principal-and-interest payment to get the principal portion.
- For a full year, repeat 12 times or read the year’s interest from your Form 1098, which lenders send each January.
- For lifetime cost, multiply the payment by the number of payments left and subtract the current balance.
This guide is for general education and is not financial or tax advice. Lender rounding and day-count methods vary; your loan documents and servicer statements are the final word on what you owe.
Frequently asked questions
How do I calculate the interest on one mortgage payment?
Multiply the loan balance before the payment by the annual rate divided by 12. On a $300,000 balance at 6.5%, that is $300,000 × 0.065 ÷ 12 = $1,625.00. The rest of the payment goes to principal.
Why is most of my early mortgage payment interest?
Interest is charged on the outstanding balance, and the balance is largest at the start. The payment stays the same, so as the balance shrinks, the interest part falls and the principal part grows. On a 30-year loan at 6.5%, principal does not exceed interest until about month 233.
How much total interest will I pay on a 30-year mortgage?
Multiply the monthly payment by the number of payments and subtract the amount borrowed. A $300,000 loan at 6.5% for 30 years has a $1,896.20 payment, so total payments are about $682,633 and total interest is about $382,633.
Is mortgage interest calculated daily or monthly?
Most US fixed-rate mortgages charge interest monthly at one-twelfth of the annual rate. Daily interest (per diem) matters mainly at closing and payoff, when the lender charges interest for a partial month using the annual rate divided by 365.
Can I deduct mortgage interest on my taxes?
Only if you itemize deductions. Under IRS rules, interest on up to $750,000 of acquisition debt on a main or second home is deductible. Most households take the standard deduction instead, so check whether itemizing actually saves you money.