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. Sharpe Ratio

    A ratio developed by Nobel laureate William F. Sharpe to measure ...
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. Credit & Loans

    Top 10 Common Mortgage Scams To Avoid

    How do you know which companies to avoid? Look for these telltale signs.
  6. Credit & Loans

    Can You Get A Mortgage On A Mobile Home?

    You can get a loan for a mobile home, but it may not be a mortgage. These are the choices for funding manufactured housing.
  7. Economics

    Understanding Perpetuity

    Perpetuity means without end. In finance, a perpetuity is a flow of money that will be received on a regular basis without a specified ending date.
  8. Credit & Loans

    Getting A Mortgage After Bankruptcy Or Foreclosure

    Millions of Americans had homes foreclosed and millions more went into bankruptcy. Here are the necessary qualifying steps to buying a home again.
  9. Taxes

    Will Itemized Deductions Get You A Bigger Refund?

    April and taxes are due soon. If you need to file your return, you might have to decide if itemizing your deductions this year will net you a better deal.
  10. Home & Auto

    Save $30,000 For A Home Down Payment In 5 Months

    Before tackling mortgage rates, home maintenance costs and utilities, every home buyer must first gather the funds for a mortgage loan down payment.

You May Also Like

Hot Definitions
  1. DuPont Analysis

    A method of performance measurement that was started by the DuPont Corporation in the 1920s. With this method, assets are ...
  2. Asset Class

    A group of securities that exhibit similar characteristics, behave similarly in the marketplace, and are subject to the same ...
  3. Fiat Money

    Currency that a government has declared to be legal tender, but is not backed by a physical commodity. The value of fiat ...
  4. Interest Rate Risk

    The risk that an investment's value will change due to a change in the absolute level of interest rates, in the spread between ...
  5. Income Effect

    In the context of economic theory, the income effect is the change in an individual's or economy's income and how that change ...
  6. Price-To-Sales Ratio - PSR

    A valuation ratio that compares a company’s stock price to its revenues. The price-to-sales ratio is an indicator of the ...
Trading Center