Interest Due

AAA

DEFINITION of 'Interest Due'

The portion of a current mortgage payment that is comprised of interest on the remaining principal amount. In a standard amortizing mortgage, the first payments will go mainly toward interest due, with only a small percentage of the payment going toward reducing the principal amount. When the next monthly payment comes around, the interest due will be calculated on the updated principal amount, which will have decreased slightly from the prior month's payment.

As time progresses, the interest due each month should fall as a percentage of the monthly payment, with more money going toward reducing the principal.

INVESTOPEDIA EXPLAINS 'Interest Due'

If a borrower has signs on for an "interest-only" mortgage, the entire monthly payment will only be covering the interest due on the loan, with a balloon payment expected to pay down the entire principle amount at the very end. These types of mortgages are entered into with the expectation of being able to refinance the entire loan before the balloon payment is due.

As long as real estate prices are rising, this model works well as there will be equity value built up in the home, which can be accessed when refinancing the debt. If, however, real estate prices are flat or falling, then the option to refinance won't be available, and the borrower may face foreclosure of the home or a balloon payment that they may not be able to afford.

RELATED TERMS
  1. Option Adjustable-Rate Mortgage ...

    A type of mortgage where the mortgagor (borrower) has several ...
  2. Simple-Interest Mortgage

    A mortgage where interest is calculated on a daily basis, as ...
  3. Balloon Loan

    A type of loan which does not fully amortize over its term. Since ...
  4. Refinancing Risk

    1. The risk that an early unscheduled repayment of principal ...
  5. Term

    1. The lifespan assigned to an asset or a liability, over which ...
  6. Precedent Transaction Analysis

    A valuation method in which the prices paid for similar companies ...
RELATED FAQS
  1. What is the difference between "closed end credit" and a "line of credit?"

    Depending on the need, an individual or business may take out a form of credit that is either open- or closed-ended. While ... Read Full Answer >>
  2. In what instances does a business use closed end credit?

    The most common types of closed-end credit used by both businesses and individuals are mortgages and auto loans. Businesses ... Read Full Answer >>
  3. What are the long-term effects of delinquent accounts?

    Delinquency occurs when borrowers fail to make payments on their loans. All loan borrowers should do their best to avoid ... Read Full Answer >>
  4. How was the American Dream impacted by the housing market collapse in 2008?

    The American Dream was seriously damaged by the housing market collapse in 2008. In many ways, the American Dream is a self-fulfilling ... Read Full Answer >>
  5. How much risk is associated with subprime mortgages?

    A large amount of risk is associated with subprime mortgages. Since the mortgages are specifically for people who do not ... Read Full Answer >>
  6. What are the financial consequences of filing for bankruptcy?

    The financial consequences of filing for bankruptcy are substantial and can be long-lasting. They include impacts on your ... Read Full Answer >>
Related Articles
  1. Insurance

    ARMed And Dangerous

    In a climate of rising interest rates, having an adjustable-rate mortgage can be risky.
  2. Budgeting

    Mortgages: How Much Can You Afford?

    Answering this means number-crunching as well as factoring in other considerations and expenses.
  3. Home & Auto

    The Benefits Of Mortgage Repayment

    Buying a home may be the biggest debt you'll ever incur. Learn why you should retire it sooner, rather than later.
  4. Home & Auto

    Option ARMs: American Dream Or Mortgage Nightmare?

    Option adjustable rate mortgages could make or break your home-buying experience.
  5. Fundamental Analysis

    Understanding the Profitability Index

    The profitability index (PI) is a modification of the net present value method of assessing an investment’s attractiveness.
  6. Economics

    What is Neoliberalism?

    Neoliberalism is a little-used term to describe an economy where the government has few, if any, controls on economic factors.
  7. Fundamental Analysis

    Explaining the Monte Carlo Simulation

    Monte Carlo simulation is an analysis done by running a number of different variables through a model in order to determine the different outcomes.
  8. Credit & Loans

    Calculating Interest Expense

    Interest expense is the cost of borrowing money.
  9. Economics

    Understanding Limited Liability

    Limited liability is a legal concept that protects equity owners from personal losses due to their ownership interest in the company.
  10. Fundamental Analysis

    Explaining the Empirical Rule

    The empirical rule provides a quick estimate of the spread of data in a normal statistical distribution.

You May Also Like

Hot Definitions
  1. Multicurrency Note Facility

    A credit facility that finances short- to medium-term Euro notes. Multicurrency note facilities are denominated in many currencies. ...
  2. National Currency

    The currency or legal tender issued by a nation's central bank or monetary authority. The national currency of a nation is ...
  3. Treasury Yield

    The return on investment, expressed as a percentage, on the debt obligations of the U.S. government. Treasuries are considered ...
  4. Bund

    A bond issued by Germany's federal government, or the German word for "bond." Bunds are the German equivalent of U.S. Treasury ...
  5. European Central Bank - ECB

    The central bank responsible for the monetary system of the European Union (EU) and the euro currency. The bank was formed ...
  6. Quantitative Easing

    An unconventional monetary policy in which a central bank purchases private sector financial assets in order to lower interest ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!