Mortgage interest can be both simple but also complicated, depending how you look at it. From a simple perspective, it is what the banks or lender will charge you in exchange for the money they’re lending you. So when you go and borrow the money for a loan, you can expect to pay back the principal amount, in addition to the amount of interest you’re being charged.
Mortgage Interest made Simple
Now if we look at mortgage interest from a different simple perspective, it can be viewed as the price you’re paying for using somebody else’s money. The bank or lender is essentially loaning you the money, and in order to make a profit off of that, they’ll charge you interest.
How is Mortgage Interest Calculated?
Interest on your mortgage loan is typically calculated as a percentage of the principal amount that you borrowed. So if you borrow $100,000 at an interest rate of 5%, your mortgage interest would come out to $5,000 over the life of the loan. However, it’s important to remember that mortgage interest is usually only paid on the outstanding principal balance, not the full amount that you originally borrowed.
In other words, if you make regular mortgage payments and reduce the principal balance of your loan, the amount of interest you’ll owe will also go down. This is one of the main reasons why it’s important to make extra mortgage payments whenever you can – it’ll save you money in the long run!
An Important Topic
Mortgage interest can be a controversial topic, but at the end of the day, it’s just something that comes with taking out a mortgage loan. If you’re looking to borrow money to buy a home, it’s important to understand how mortgage interest works so that you can make informed decisions about your loan.
An additional tip from a financial perspective is to be careful with how much of a down payment you provide. Of course you want a down payment that is large enough to get your monthly payments low enough and affordable, but you don’t want to tie up more money than necessary. Here’s what we mean:
Sometimes the opportunity cost of a larger down payment is not worth it. In other words, from the small amount of interest you’re saving by providing a larger down payment, that money may be more beneficial working in a market and earning greater interest in shorter amount of time. So you should always consider opportunity cost and get expert advice if you’re not certain with how much you should be putting up for a down payment.
An experienced mortgage broker like Asim Ali would explain this very well to you if you’re still confused and they would answer any other questions you may have about mortgages and the home buying process. Give them a call today, you won’t be disappointed that you did.