An interest rate determines the amount of interest a borrower will pay over the course of the loan, on top of the original loan balance. When taking out a new loan, keep track of the interest rate, especially if it's a variable interest rate, which has the ability to change over the course of the loan. If you don't know your interest rate, there are ways to figure out the interest rate or the amount of interest that will be paid over time.
How to Calculate the Interest Rate for a Mortgage
Obtain a copy of your monthly loan statement sent regularly through the mail or usually available online through your lender.
Find the current loan balance and amount paid toward interest on the statement.
Multiply the amount paid toward interest by 12 to determine the amount of interest paid over the course of the year. For example, if you paid $333 in interest that month, it would be $3,996 for the year.
Divide the amount of interest paid over the year by the current loan balance. For example, $3,996 divided by a current loan balance of $83,828 equals 0.0476. Multiply that number by 100 to get the approximate interest rate — in this case, 4.76 percent.
Determining Amount of Interest Paid
Divide the original amount of your loan by the number of months in the loan term. For example, a five-year car loan is equal to 60 months. An original loan balance of $15,000 divided by 60 is $250 a month.
Subtract the monthly number from your current loan payment. For example, if your current loan payment is $300, subtract $250 to get $50 — the amount of interest paid each month.
Multiply the amount of interest paid each month by the number of months in the loan term to get the amount of interest paid in total. For example, $50 multiplied by 60 is $3,000, so over the course of the loan, you should expect to pay $3,000 in interest.
- Lending Tree: How to Read a Mortgage Statement
- Consumer Financial Protection Bureau. "How Does Paying Down a Mortgage Work?" Accessed Oct. 9, 2019.
- Consumer Financial Protection Bureau. "What Is the Difference Between a Mortgage Interest Rate and an APR?" Accessed Oct. 9, 2019.
- Consumer Financial Protection Bureau. "CFPB Consumer Laws and Regulations: Truth in Lending," Page 14. Accessed Oct. 9, 2019.
- Consumer Financial Protection Bureau. "What Are (Discount) Points and Lender Credits and How Do They Work?" Accessed Oct. 9, 2019.
Stacy Zeiger began writing in 2000 for "Suburban News Publication" in Ohio and has expanded to teaching writing as an eighth grade English teacher. Zeiger completed creative writing course work at Miami University and holds a B.A. in English and a M.Ed. in secondary education from Ohio State.