When you take out a loan, your lender will charge you a percentage fee of that loan in the form of interest. The percentage received by your lender is based on the principal amount of the loan in relation to your standing as a borrower based on certain financial criteria, like your credit card score, debt-to-income (DTI) ratio, and other financial factors that indicate the risk you pose as a borrower to repay your loan.
It is important to be aware of the interest rate on your loan as it will greatly impact your monthly payments made over the life of your loan. Using a loan interest calculator can show you how much interest you can expect to pay over the life of the loan. The Home Loan Expert team is here to show you how your interest rate is calculated and what you can do with that figure when creating a financial plan of action for your loan.
What Determines My Interest Rate?
Interest rates come in two forms: fixed and variable. Fixed interest rates remain constant over the life of the loan, whereas variable interest rates fluctuate in alignment with market trends once the negotiated initial period ends. Your credit score and other financial records such as pay stubs and W2 statements will be assessed to determine the risk you present to your lender when it comes to paying back your loan. The better your financial credibility, the better rates you can secure on the interest on your loan.
Additionally, rates across the housing market are affected by fluctuations in the economy. At times, across the lending spectrum, interest rates will be set at competitively low prices (like now), and rise with an increase in the demand for money or credit housing (predictably in the near future). As of now, interest rates are set competitively low and are a great opportunity for prospective homeowners to take advantage of.
How Do I Calculate How Much Interest I Will Pay Over the Life of my Loan?
For fixed-rate interest loans, there are a few simple key variables you can use as inputs to calculate how much interest you will pay over the life of your loan. Fill in the information below to the best of your ability to get a more accurate estimate when calculating the amount of interest you will be scheduled to pay over the life of your loan.
- Loan Amount. This is the total loan amount issued to you for your mortgage by your lender. It covers the principal on your loan.
- Annual Interest Rate. On the lower end of the range, expect to pay an interest rate closer to 2%. On the higher end of the range, expect to pay between 7-8% in interest.
- Loan Term. This input is the period of time over which the loan is repaid. Terms on home loans are typically set in increments of 15 or 30 years. With a 15-year term, more aggressive monthly payments can allow you to save thousands of dollars otherwise paid in interest over the life of the loan. On the other hand, a 30-year term will allow you to make lower, (usually) more affordable monthly payments over the life of the loan. However, this means you will also pay more in interest throughout the life of the prolonged loan term. In fact, the majority of your initial monthly payments as a homeowner go towards paying off the interest on your loan before even getting to the core of your mortgage: the principal.
Long story short, a shorter loan term equals thousands of dollars saved in interest that would otherwise be paid over the life of the loan.
For an adjustable-rate mortgage (ARM) loan, how much interest you will pay over the life of your loan will be calculated differently depending on the negotiated initial interest period. ARMs are an attractive option to homebuyers because they usually come with lower interest rates set during the initial period on the loan, which can range from 3 to 5 to 7 to 10 years.
Once the initial period comes to an end, the ensuing variable interest rate will fluctuate throughout the life of the loan in alignment with the market economy which can have a major impact on how high or low your monthly payments will be. You can use an ARM calculator to estimate how the initial and variable interest rate will affect your monthly payments throughout the life of your loan.
What Can I Do to Lower How Much Interest I Will Pay Over the Life of My Loan?
Maybe when you first applied for your loan, your financial records were in less than ideal standing. Maybe increased market scarcity in the housing industry means that the low interest rates available today were not available at the time you purchased your home. Whatever the case may be, it is possible to get a better deal on how much interest you will pay over the life of your loan by refinancing into a better rate (lower interest rate) or term (switching from a 30-year to a 15-year mortgage term).
Paying off your loan with more aggressive monthly payments can also save you hundreds of thousands that would otherwise be paid over the life of your loan. Overall, your best options are to pay off your loan sooner or to refinance into a loan with a lower interest rate.
How Can The Home Loan Expert Help?
An interest calculator is a useful tool when you’re trying to find out how much you will pay over the life of the loan. However, it lacks the personalized touch a lending Expert can provide you with when it comes to brainstorming the options available to you that can greatly impact how much interest you will pay over the life of your loan.
Our team of knowledgeable lending Experts is available to discuss how to make the rates and terms on your loan best serve your budgeting needs and financial goals. We are familiar with our client’s needs and can relate to what you are going through as homeowners as our team is drawn from the same communities we serve. We will provide you with a personalized customer service experience to make sure you feel confident about your monthly payment options.Let us assist you today by calling 866-221-1926 to speak with one of our savvy lending experts, whose mission is to get you the best deal possible on your loan. We can also be reached through our online chat service to find out how you can secure a lower interest rate, putting you in a better position financially.