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Calculating Mortgage Interest

Jan 29, 2020

Calculating Mortgage Interest


Matt Zagula
One Financial Way
Cincinnati, Ohio 45242
513 794-6794


00:00 Matt Zagula: Hey, Pittsburgh it’s Matt Zagula with and I wanted to share with you today the right way to calculate the interest on your mortgage payments and the truth about how much interest you actually pay. So if you had say, a $100,000 mortgage and you had a 4% interest rate over a 30-year term and you were looking at that mortgage and you saw that your payment was $477.42 per month and I asked you, hey, how much interest are you paying? It would make a lot of sense if you said, well, it says right there math 4%. But the truth is the math is very different. And in fact that 4% is an annual percentage rate.

01:00 MZ: What that means is to figure out how much interest you’re actually gonna pay in your very first payment, you would have to take that outstanding balance, that original mortgage balance of $100,000 and multiply it by 4% and that would give you $4000 of annual interest. Now because it’s an annual percentage rate in order to figure out the first month what we need to do is to divide that $4000 by 12. So we find out in our very first month’s payment there’s $333.33 of interest. Now that’s not money that’s going to buy you any more equity in that payment in your home. That $333.33 is going to the bank in the form of an interest payment. So when you consider you have a $477.42 monthly payment and $333.33 cents is going to just interest, what that means the interest amount, the volume of interest in that very first payment is over 69.8%, almost 70% of your payment is going to just satisfying the interest. Now, the next month your balance will be slightly lower but that same exercise applies and you’ll still be over 69% interest in the second month.

02:36 MZ: So I wanted you to understand the correct way on how amortization works and the importance of managing your debts. At Pittsburgh Smart what we do is help folks like you to reduce the effective interest cost on your debts and also to reduce the effective tax cost on your retirement assets. If you would like to learn more please use our tool the Debt Free 4 Life tool that is on our website at

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