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Last Updated: 20th September, 2022 If you’re looking to apply for a home loan, know that your monthly repayments will typically consist of both the principal (the amount you borrowed) and interest. For example, you take out a $600,000 home loan at a 3% interest rate. Your principal starts at $600,000 but you won’t pay 3% on that same amount every month because your balance usually decreases as you make repayments. How Do I Calculate My Home Loan Interest?Suppose your bank calculates your home loan interest daily and charges you at the end of each month. You can find the interest charged on your home loan using this formula: (P X R) / T = I
Let’s say you borrow $600,000 in a home loan at an interest rate of 3% a year. Using the formula above, the interest you’d pay per day would be: ($600,000 X 0.03) / 365 = $49.31 Which Factors Influence How Much Mortgage Interest I Pay?Even if your repayments remain the same, the interest you pay might fluctuate each month. This is because your interest rate is calculated on a daily basis but charged monthly; the more days in a month, the higher the interest charged. Some lenders may calculate interest differently. For example, they may assume the same number of days in each month and use the average balance for that month to calculate the interest. Overall, this has a negligible effect on repayments. Factors that affect your mortgage interest include:
What Interest Rates Are Available?Banks don’t always advertise their lowest rates. To spare you the hassle of shopping around, we have listed the best interest rates from our panel of 40+ lenders. Check out the latest home loan interest rates and special offers. How Can I Save Interest On My Home Loan?You can save thousands of dollars on your interest just by getting the best rate. If you already have a home loan, you might even want to consider refinancing with your current lender or a new lender that can offer you a better rate. One of the most effective ways to save on home loan interest is by paying off your loan faster. Here are some tips to help you do that:
Home Loan Experts Can Help!Home Loan Experts’ mortgage brokers can negotiate the best interest rates on your behalf so that you pay less interest right from the start. If you’d like us to calculate the
interest you’ll pay for different situations and rates, call us on 1300 889 743 or fill in our free assessment form. Insider's experts choose the best products and services to help make smart decisions with your money (here’s how). In some cases, we receive a commission from our our partners, however, our opinions are our own. Terms apply to offers listed on this page.
LoadingSomething is loading. Thanks for signing up! Access your favorite topics in a personalized feed while you're on the go. More often than not, a homeowner who borrowed money to buy a house is making one lump-sum monthly payment to their mortgage lender. But while it may be called the monthly mortgage payment, it includes more than just the cost of repaying their loan and interest. For many of the millions of American homeowners carrying a mortgage, the monthly payment also includes private mortgage insurance, homeowners insurance, and property taxes. This is known as PITI: principal, interest, taxes, and insurance. It's possible to estimate your total monthly payment by hand using a standard formula, but it's often easier to use an online mortgage calculator. Either way, here's what you'll need: 1. Determine your mortgage principalThe initial loan amount is referred to as the mortgage principal. For example, someone with $100,000 cash can make a 20% down payment on a $500,000 home, but will need to borrow $400,000 from the bank to complete the purchase. The mortgage principal is $400,000. If you have a fixed-rate mortgage, you'll pay the same amount each month. With each monthly mortgage payment, more money will go toward your principal, and less will go toward paying interest. (To learn more about how this process works, check out an example amortization schedule.) Read more: The average monthly mortgage payment by state, city, and year 2. Calculate the monthly interest rateThe interest rate is essentially the fee a bank charges you to borrow money, expressed as a percentage. Typically, a buyer with a high credit score, high down payment, and low debt-to-income ratio will secure a lower interest rate — the risk of loaning that person money is lower than it would be for someone with a less stable financial situation. Lenders provide an annual interest rate for mortgages. If you want to do the monthly mortgage payment calculation by hand, you'll need the monthly interest rate — just divide the annual interest rate by 12 (the number of months in a year). For example, if the annual interest rate is 4%, the monthly interest rate would be 0.33% (0.04/12 = 0.0033). 3. Calculate the number of paymentsThe most common terms for a fixed-rate mortgage are 30 years and 15 years. To get the number of monthly payments you're expected to make, multiply the number of years by 12 (number of months in a year). A 30-year mortgage would require 360 monthly payments, while a 15-year mortgage would require exactly half that number of monthly payments, or 180. Again, you only need these more specific figures if you're plugging the numbers into the formula — an online calculator will do the math itself once you select your loan type from the list of options. 4. Find out whether you need private mortgage insurancePrivate mortgage insurance (PMI) is required if you put down less than 20% of the purchase price when you get a conventional mortgage, or what you probably think of as a "regular mortgage." Most commonly, your PMI premium will be added to your monthly mortgage payments by the lender. The exact cost will be detailed in your loan estimate, but PMI typically costs between 0.2% and 2% of your mortgage principal. Oftentimes, PMI can be waived once the homeowner reaches 20% equity in the home. You also may pay a different type of mortgage insurance if you have another mortgage, such as an FHA mortgage. 5. Consider the cost of property taxesA monthly mortgage payment will often include property taxes, which are collected by the lender and then put into a specific account, commonly called an escrow or impound account. At the end of the year, the taxes are paid to the government on the homeowners' behalf. How much you owe in property taxes will depend on local tax rates and the value of the home. Just like income taxes, the amount the lender estimates the homeowner will need to pay could be more or less than the actual amount owed. If the amount you pay into escrow isn't enough to cover your taxes when they come due, you'll have to pay the difference, and your mortgage payment will likely increase going forward. You can typically find your property tax rate on your local government's website. 6. Consider the cost of homeowners insuranceAlmost every homeowner who takes out a mortgage will be required to pay homeowners insurance — another cost that's often baked into monthly mortgage payments made to the lender. There are eight different types of homeowners insurance, so when you buy a policy, ask the company about which type of coverage is best for your situation. The insurance policies with a high deductible will typically have a lower monthly premium. 7. Calculate your monthly paymentUse our free mortgage payment calculator to find out how much you'll pay each month: Mortgage CalculatorLength of loan (years) Interest rate % $1,161 Your estimated monthly payment
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Chevron iconIt indicates an expandable section or menu, or sometimes previous / next navigation options. Chevron iconIt indicates an expandable section or menu, or sometimes previous / next navigation options. If you want to do the math by hand, you can calculate your monthly mortgage payment, not including taxes and insurance, using the following equation: M = P [ i(1 + i)^n ] / [ (1 + i)^n – 1] P = principal loan amount i = monthly interest rate n = number of months required to repay the loan Once you calculate M (monthly mortgage payment), you can add in the monthly property tax and homeowners insurance premium, if you have them. These are fixed costs that aren't determined by how much you borrow from the bank, so they can easily be added to the monthly cost. Mortgage and refinance rates by stateCheck the latest rates in your state at the links below. Alabama
Tanza is a CFP® professional and former correspondent for Personal Finance Insider. She broke down personal finance news and wrote about taxes, investing, retirement, wealth building, and debt management. She helmed a biweekly newsletter and a column answering reader questions about money. Tanza is the author of two ebooks, A Guide to Financial Planners and "The One-Month Plan to Master your Money." In 2020, Tanza was the editorial lead on Master Your Money, a yearlong original series providing financial tools, advice, and inspiration to millennials. Tanza joined Business Insider in June 2015 and is an alumna of Elon University, where she studied journalism and Italian. She is based in Los Angeles. Read more Read less
Laura Grace Tarpley, CEPF Personal Finance Reviews Editor Laura Grace Tarpley (she/her) is a personal finance reviews editor at Insider. She edits articles about mortgage rates, refinance rates, lenders, bank accounts, wealth building, and borrowing and savings tips for Personal Finance Insider. She was a writer and editor for Insider's "The Road to Home" series, which won a Silver award from the National Associate of Real Estate Editors. She is also a Certified Educator in Personal Finance (CEPF). She has written about personal finance for over six years. Before joining the Insider team, she was a freelance finance writer for companies like SoFi and The Penny Hoarder, as well as an editor at FluentU. You can reach Laura Grace at . Learn more about how Personal Finance Insider chooses, rates, and covers financial products and services » Read more Read less Personal Finance Insider offers tools and calculators to help you make smart decisions with your money. We do not give investment advice or encourage you to buy or sell stocks or other financial products. What you decide to do with your money is up to you. If you take action based on one of the recommendations listed in the calculator, we get a small share of the revenue from our commerce partners. Editorial Note: Any opinions, analyses, reviews or recommendations expressed in this article are those of the author’s alone, and have not been reviewed, approved or otherwise endorsed by any card issuer. Read our editorial standards. Please note: While the offers mentioned above are accurate at the time of publication, they're subject to change at any time and may have changed, or may no longer be available. **Enrollment required. |
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