How much interest will you pay over the life of your home loan?
If you are considering taking out a home loan to purchase a property, one of the key factors that you need to consider is the amount of interest that you will pay over the life of the loan. The amount of interest that you pay can have a significant impact on the overall cost of your home loan. To calculate the amount of interest that you will pay over the life of your home loan, you will need to know the following information:
- The principal amount of the loan: This is the total amount of money that you borrow from the lender, before any interest is applied.
- The interest rate: This is the percentage rate at which interest is charged on the loan. The interest rate can vary depending on a number of factors, including the type of loan, the lender, and your credit score.
- The term of the loan: This is the length of time over which you will repay the loan, typically expressed in years.
With this information in hand, you can use the Joust home loan calculator to determine the amount of interest that you will pay over the life of the loan.
Factors that could impact the amount of interest you will pay:
- The loan amount: Put simply, the larger your loan, the more interest you will pay over the life of your loan.
- The interest rate: A higher interest rate will result in more interest being charged on your loan, while a lower interest rate will result in less interest being charged. The loan term: The longer the term of your loan, the more interest you will pay over the life of your loan.
- The type of loan: Different types of home loans, such as fixed-rate or adjustable-rate mortgages, can have different interest rates and terms, which can affect the amount of interest you will pay.
- Your credit score: Your credit score can affect the interest rate you are offered by a lender, with higher credit scores typically resulting in lower interest rates.
How do I calculate how much interest I will pay on my mortgage?
FORMULA: Interest = Principal x Interest Rate x Term
Where:
- Principal is the total amount of money that you borrow from the lender, before any interest is applied.
- Interest Rate is the percentage rate at which interest is charged on the loan.
- Term is the length of time over which you will repay the loan, typically expressed in years.
EXAMPLE: Let's say that you are considering taking out a home loan with a principal amount of $300,000, an interest rate of 4%, and a term of 25 years. Using the formula above, you can calculate the amount of interest that you will pay as follows:
Interest = $300,000 x 4% x 25 years = $300,000
What does this mean? It means that the total cost of the loan, including both the principal amount and the interest, would be $600,000.
As you can see, the amount of interest that you pay on your mortgage can vary depending on the specific terms of your loan, such as the principal amount, the interest rate, and the term. By using this formula and carefully considering your options, you can make an informed decision about the home loan that is right for you
Tips to pay less interest on your home loan?
- Hot tip #1: Shop around for competitive home loan deals with great interest rates: Different lenders will offer different interest rates, and by comparing these rates, you can find the one that is most favorable to you. To compare interest rates, you can use a Joust Live Instant Match. When speaking with our trusted partner brokers, they will be able to help you to find the one that is most suited to your needs - and has a great rate.
- Hot tip #2 Take into consideration using a fixed-rate loan:With a fixed-rate loan, the interest rate remains the same for the entire term of the loan, which can provide you with greater stability and predictability when it comes to your monthly payments. One of the benefits of a fixed-rate loan is that it can help you to avoid the impact of rising interest rates. If interest rates increase after you take out your loan, the amount of interest that you pay on a variable-rate loan will also increase. However, with a fixed-rate loan, the interest rate remains the same, which means that your monthly payments will not be affected.
Another advantage of a fixed-rate loan is that it can help you to budget and plan for the future. Because the interest rate and monthly payments are fixed, you will know exactly how much you need to pay each month, which can make it easier to manage your finances and save money. However, it's important to keep in mind that fixed-rate loans can also have disadvantages. For example, if interest rates decline after you take out your loan, you will not be able to take advantage of these lower rates. Additionally, fixed-rate loans may have higher interest rates and fees compared to variable-rate loans.
- Hot tip #3: Provide a larger deposit: When you take out a home loan, you typically need to make a deposit, which is a percentage of the purchase price that you pay upfront. The larger your deposit, the less money you need to borrow, which can reduce the amount of interest that you pay over the life of the loan.
For example, let's say that you are purchasing a property for $500,000, and you have a down payment of $100,000. If you take out a home loan with a principal amount of $400,000, an interest rate of 3.5%, and a term of 30 years, you would pay a total of $276,966 in interest over the life of the loan.
However, if you were able to increase your down payment to $200,000, the principal amount of your loan would be reduced to $300,000. With this lower principal amount, the amount of interest that you pay over the life of the loan would be $209,966, which is a savings of $67,000.
- Hot tip #4: Make extra payments: By making additional payments on your home loan, you can reduce the principal amount and the amount of interest that you pay over the life of the loan. You will be able to tpay down the loan balance faster and reduce the amount of interest that will be charged on the loan. This can be done by making larger monthly payments, making additional payments throughout the year, or making a lump-sum payment towards the principal balance of the loan. Check with your bank to see if this is best for you and your home loan product.
- Hot tip #5: Refinance and save: By refinancing the mortgage, you can possibly can secure a lower interest rate or a different loan term, which can reduce the amount of interest that will be charged on the loan.
Additionally, refinancing can provide you with the opportunity to change the terms of your loan, such as the loan amount, the term, or the type of loan. This can provide you with greater flexibility and allow you to tailor your loan to meet your specific needs and goals.
Interested in lowering your interest?
Working with a good mortgage broker could mean securing a better home loan rate which could help you save money over the life of your loan. To see the top 3 competitive home loan offers available to you, simply use Joust Instant Match. You’ll be matched with up to 3 of our trusted partner brokers willing to assist you with your home loan needs. Try Joust Instant Match today.
*The information contained in this article is intended to be of a general nature only. It has been prepared without taking into account any person’s objectives, financial situation or needs. Before acting on this information, Joust recommends that you consider whether it is appropriate for your circumstances. Joust recommends that you seek independent legal, financial and taxation advice before acting on any information in this article.
