How to Calculate the Remaining Balance on a Home Mortgage

When you take out a mortgage to finance a new home, the loan payments are the same from month to month. However, during the first years, a larger portion of the monthly payment is applied to the interest on the loan. As years go by, less of the monthly payment is applied to the interest, and more is applied to the principal balance. This process is called amortization.

If you want to calculate the remaining balance of your home loan (just the principal, not the interest), you need to use a special financial math formula that accounts for amortization.

The formula described below only works for a fixed rate mortgage, where no early payments are made. If you have an adjustable rate mortgage (ARM), or make early payments, then this formula will not be accurate. You can also use the mortgage calculator on the left to figure the remaining principal balance.

The first step is to look at your last mortgage statement to find the total amount borrowed, the annual interest rate, and the dollar amount of your monthly payments. Call these numbers P, R, and M, respectively.

Next, compute the balance paid after X months using this formula:

Bal. Paid = (12M/R - P)[(1+R/12)^X - 1]

Then, compute the balance due with this formula:

Bal. Due = P - (Bal. Paid)
= 12M/R - (12M/R - P)(1+R/12)^X

Here is an example to help you see a calculation in action. Suppose you take out a 30-year fixed rate mortgage on $150,000 at a 6% annual rate. Using a mortgage calculator, we find that the monthly payments are $899.33. You want to know how much of the principal balance is due after 5 years. (60 months) In this example, P = 150000, M = 900, R = 0.06, and X = 60. By plugging those numbers into the formulas above, we compute that the balance paid thus far is $10,466, and the balance due is $139,534.

After 25 years (300 months), the balance paid is $103,949 and the balance due is $46,051.

Use this formula if you plan on refinancing at a later date. Knowing the balance paid and balance due in the future can help you decide when it's appropriate to refinance your home loan.

You can also use the formula to compute home equity. Home equity is calculated by taking the current market value of your home minus the balance due. So, if your home is worth $200,000 and you owe $70,000, then your current equity is $130,000.

© Had2Know 2010