How to Calculate Mortgage Interest in Excel
Calculating mortgage interest can be a daunting task, especially if you’re not familiar with financial formulas. However, with Excel, you can easily compute mortgage interest with just a few simple steps. In this article, we’ll guide you through the process of calculating mortgage interest in Excel, so you can keep track of your payments and understand the cost of your loan.
Step 1: Gather the necessary information
Before you start calculating mortgage interest in Excel, you’ll need to gather some key information about your mortgage. This includes:
– The principal amount (the total loan amount)
– The interest rate (annual percentage rate)
– The term of the loan (number of years)
– The payment frequency (monthly, quarterly, etc.)
Step 2: Set up your Excel worksheet
Open a new Excel worksheet and create the following columns:
– Column A: Payment Number
– Column B: Payment Amount
– Column C: Remaining Principal
– Column D: Interest Paid
– Column E: Principal Paid
Step 3: Calculate the monthly payment
To calculate the monthly payment, you can use the PMT function in Excel. The formula for the PMT function is:
PMT(rate, nper, pv, [fv], [type])
Where:
– rate is the monthly interest rate
– nper is the total number of payments
– pv is the present value (the principal amount)
– fv is the future value (optional)
– type is the payment type (0 for end of period, 1 for beginning of period)
For example, if your annual interest rate is 5% and your loan term is 30 years, the monthly interest rate would be 5%/12, and the total number of payments would be 3012. Assuming you’re making monthly payments, the formula would be:
=PMT(5%/12, 3012, -100000)
This formula assumes that you’re borrowing $100,000. The negative sign is used to indicate that the payment is an outgoing cash flow.
Step 4: Calculate the interest and principal paid for each payment
Now that you have the monthly payment amount, you can calculate the interest and principal paid for each payment. In cell D2, enter the following formula to calculate the interest paid for the first payment:
=D2B2
This formula multiplies the remaining principal (B2) by the monthly interest rate (5%/12). In cell E2, enter the following formula to calculate the principal paid for the first payment:
=E2-D2
This formula subtracts the interest paid (D2) from the monthly payment (B2) to get the principal paid.
Step 5: Fill in the remaining payments
To fill in the remaining payments, drag the formulas in cells D2 and E2 down to the last payment. This will calculate the interest and principal paid for each payment, and update the remaining principal accordingly.
Step 6: Review your results
Once you’ve filled in all the payments, you can review your results. The total interest paid over the life of the loan will be the sum of the interest paid for each payment. The remaining principal at the end of the loan term will be the final value in column C.
By following these steps, you can easily calculate mortgage interest in Excel and keep track of your loan payments. This can help you make informed decisions about your mortgage and understand the true cost of borrowing.
