1. What is Mortgage Interest?

Mortgage interest is the cost you pay to borrow money for your home loan. It's calculated as a percentage of your outstanding principal and represents the lender's profit.

2. How Does the Calculator Work?

The calculator uses the simple interest formula:

Where:

• \( Principal \) — Original loan amount ($)
• \( Annual Rate \) — Yearly interest rate (decimal)

Explanation: This calculates the yearly interest payment before considering any principal reductions or compounding effects.

3. Importance of Interest Calculation

Details: Understanding your annual interest helps with budgeting, comparing loan options, and planning prepayments to reduce total interest costs.

4. Using the Calculator

Tips: Enter principal in dollars, annual rate as decimal (e.g., 0.05 for 5%). Both values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: Is this the actual interest I'll pay each year?
A: This shows simple interest. Actual payments may differ with amortization where each payment covers both interest and principal.

Q2: How does this differ from APR?
A: APR includes fees and other loan costs, while this calculates pure interest on the principal.

Q3: Why use decimal for interest rate?
A: Decimal format (0.05) is required for mathematical operations, unlike percentage format (5%).

Q4: Can I use this for other loans?
A: Yes, it works for any simple interest calculation, though most loans use more complex amortization.

Q5: How can I reduce my interest payments?
A: Making extra principal payments, refinancing at lower rates, or choosing shorter loan terms can reduce total interest.