math
interest calculation
Interest calculation determines the cost of borrowing money. Simple interest uses the formula Interest equals Principal times Rate times Time. For mortgages, monthly interest is usually found by multiplying the loan balance by the annual rate and dividing by 12. Each payment's remaining amount reduces principal, which lowers next month's interest in an amortized loan.
- Exam tip
- For a monthly figure, divide the annual interest by 12. In amortization questions, compute interest first, then subtract it from the payment to find principal paid.
- Example
- A $200,000 balance at 6 percent accrues $200,000 x 0.06 / 12, or $1,000 in interest for the month.
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Last verified: 2026-10-23