A mortgage is when a person takes out a loan from a bank or other financial institution to pay for or help pay for the purchase of land or a home that will be their primary or secondary place of residence. This comes down to the fact that a mortgage is the amount of money a person owes when they buy land or a building to live in.
When people borrow money, the business or organisation that gives them the money will add interest to the amount they borrow. Mortgage interest is any interest paid on a mortgage, a second mortgage for a second home, a line of credit, or a home equity loan. The mortgage interest is the money that the people have to pay back for getting the loan, but not the loan amount itself.
This amount can be hard to figure out because there are different things to think about for each loan. The first number that needs to be set in stone is how much the loan will cost all together. This is usually the biggest number to start with in a formula. The amount of a house loan can be anywhere from a few thousand dollars to millions of dollars, depending on the home or land being bought. The next thing people need is their interest rate. This can be less than two percent or more than eight percent. Again, this will be different for each person based on the rules and standards set by their particular financial institutions.
For example, a person can get a loan for their home of $315,000. The bank could charge them interest of up to 6.5%. This number is found by multiplying the loan amount ($315,000) by the decimal version of the percentage (.065). The math says that this amount is $20,475.00. The interest due for a single year is $20,475. To figure out how much interest the person has already paid, they need to multiply their annual interest rate by the number of years they have been paying their mortgage. People who want to know how much interest they will pay in total can multiply the annual interest by the number of years they have to pay off their mortgage. This number is written into the loan and varies from loan to loan and from financial institution to financial institution.
Here's a simple equation:
Loan amount (L) times interest rate (I) equals annual loan amount (A) times number of years (Y) equals total interest (TI)
L x I = A
A x Y = TI
The percentage of interest must be changed into a decimal. Putting a decimal point two places to the left of the interest rate will do this. For instance, 6.5 percent is written as. 065, 8.9 percent becomes . 089, 3.2 percent becomes . 032, et cetera.
Most of the time, a person's interest rate will be lower if their monthly mortgage payment is higher than someone with a lower monthly payment but the same loan amount and length of time to pay it back. This is because people who pay back their loans faster have had the money for a shorter amount of time. Because of this, they can pay the business back faster. Since interest is paid back over time, the less time a person borrows money, the less interest they will have to pay.
