Monthly Interest Calculation
Monthly interest is the portion of the total annual interest that is paid or accrued each month.
To determine the monthly interest payment, divide the annual interest amount by 12 (the number of months in a year). This calculation is crucial for understanding the recurring cost of a loan, especially mortgages. It allows borrowers to budget effectively and compare different loan options based on their monthly obligations. Note that in amortizing loans, the proportion of each payment going towards interest decreases over time, while the portion going towards principal increases.
If the annual interest on a loan is $12,000, the monthly interest payment is $12,000 / 12 = $1,000.
Ensure you've calculated the correct annual interest before dividing by 12. Watch out for questions that trick you by providing the monthly interest rate instead of the annual rate.
Related Terms
Practice Questions
Related Concepts
Net Operating Income (NOI) is the revenue a property generates after deducting all operating expenses.
The capitalization rate (Cap Rate) is the rate of return on a real estate investment based on its expected income.
In real estate, property value can be estimated by dividing the Net Operating Income (NOI) by the Capitalization Rate (Cap Rate).
IRV stands for Income, Rate, and Value. It represents the relationship between Net Operating Income (I), Capitalization Rate (R), and Property Value (V).
Proration is the process of dividing expenses or income between the buyer and seller at the closing of a real estate transaction. This ensures each party pays or receives only their fair share based on the period of ownership.