1. What Is Mortgage Interest?

Mortgage interest is the cost you pay to borrow money for your home loan. It's calculated as a percentage of your outstanding loan balance and represents the lender's profit for providing the loan.

2. How Does the Calculator Work?

The calculator uses the mortgage interest formula:

Where:

• \( \text{Balance} \) — Current principal balance (USD)
• \( \text{Annual Rate} \) — Annual interest rate (%)

Explanation: The formula converts the annual rate to a monthly rate (by dividing by 12) and converts the percentage to a decimal (by dividing by 100).

3. Importance of Mortgage Interest Calculation

Details: Understanding how much of your payment goes toward interest helps you evaluate loan options, plan prepayments, and understand how much you're actually paying for your home over time.

4. Using the Calculator

Tips: Enter your current loan balance and annual interest rate. The calculator will show how much interest you'll pay in the next month.

5. Frequently Asked Questions (FAQ)

Q1: Why does my interest payment change over time?
A: As you pay down your principal, the interest is calculated on a smaller balance, so your interest payments decrease over time (with fixed-rate loans).

Q2: How does extra principal payment affect interest?
A: Extra payments reduce your principal faster, which means less interest accrues over the life of the loan.

Q3: What's the difference between interest rate and APR?
A: The interest rate is the cost of borrowing the principal, while APR includes additional fees and costs of the loan.

Q4: How often is mortgage interest calculated?
A: Most mortgages use daily interest calculation, but this calculator shows the monthly interest amount.

Q5: Why is my first payment mostly interest?
A: Early in your loan term, when your balance is highest, most of your payment goes toward interest.