Question:

How to calculate interest cost on a fixed rate mortgage?

Answer:

Fixed rate mortgages are easy to calculate interest cost.

Since you have a fixed rate payment for a fixed number of months, you can calculate interest cost, or how much interest you are paying the lender, by subtracting the principal from the amount you will repay over the duration of the loan.

For example, consider that your monthly payment of principal and interest will be $1041.56 and you have a 30-year fixed rate mortgage for $200,000. Multiply the number of payments 360 times 1041.56 which results in $374,961.6.

To calculate interest cost: subtract $200,000 and the interest you will be paying to the bank/lender is $174,961.6

The only nice thing about having to pay the lender all that interest is that it will be tax-deductible depending on the tax bracket you fall into. For example, if you belong to the 25% tax bracket, you will get 25% discount on your interest cost, when time to pay federal taxes comes.

Mortgage rates hit their lowest since 1955. Ask the home loan experts we recommend Quicken Loans how to take advantage of them.
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