April 5th, 2018 5:04 AM by Jackie A. Graves
For most mortgages,
lenders calculate your
principal and interest payment using a standard mathematical formula and
the terms and requirements for your loan.
A typical fixed-rate
mortgage is calculated so that if you keep the loan for the full loan term
– for example, 30 years – and make all of your payments, you will precisely pay
off the loan at the end of the loan term. Learn more about how this works.
The payment depends on
the loan amount, the loan term, and the interest rate. You can use our
calculator to calculate the monthly principal
and interest payment for different scenarios.
loan has a much shorter loan term than a regular mortgage – typically only
five years – but the monthly payments are calculated as if the loan was going
to last for a much longer time, typically 30 years. Because the monthly payments aren’t high
enough to pay off the full loan, the remaining loan balance is due as one large
final payment (known as the “balloon” payment) at the end of the loan
So, for example, if you
had a mortgage loan of $100,000 for 30 years at an interest rate of four
percent, your monthly principal
and interest payment would be $477 per month. With a regular 30-year loan you would make
this payment for 30 years. With a
five-year balloon loan you would make this payment for five years and then owe
the balance of the loan – or $90,448 – at the end of the fifth year.
Adjustable-rate mortgage (ARM)
If you have an adjustable-rate
loan, your initial payments are calculated assuming that your initial
interest rate remains the same for the entire loan term.
When your interest rate
adjusts, your payment will typically (though
not always) be re-calculated based on the new interest rate and the
remaining loan term.
The total monthly payment you send to
your mortgage company is often higher than the principal and interest payment
explained here. The total monthly payment often includes
other things, such as homeowners insurance and taxes. Learn
If you have a problem
with your mortgage, you can submit a complaint to the CFPB online or by
calling (855) 411-CFPB (2372).
If you’re behind on your
mortgage, or having a hard time making payments, you can call the CFPB at (855)
411-CFPB (2372) to be connected to a HUD-approved housing counselor today. You
can also use the CFPB's "Find a
Counselor" tool to get a list of U.S. Department of Housing and Urban
Development (HUD)-approved counseling agencies in your area.
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