Buying a home or property often requires borrowing money from a lender, and calculating interest on a home loan is an important step in working out how much your monthly payments will be.
Your loan repayments are made up of two parts: principal repayments and interest repayments. The principal is the set amount of money you borrow to finance your property, and principal repayments refer to the payments you make to your overall loan balance. Calculated interest is the annual cost for borrowing said amount.
Your interest repayments have the biggest impact on your monthly repayments and the overall amount of pay back on your home loan.
Continue reading to learn more about how mortgage interest works, how interest rates are calculated on a home loan and how interest can affect your mortgage.
How is home loan interest calculated?
Home loan interest is the annual cost of borrowing your principal loan amount. This means that your interest, or how much you pay annually in costs, is dependent on the amount of money you have borrowed.
Your interest is usually expressed in a term of percentage, called the Annual Percentage Rate or APR. At Homestar Finance, we’ll take your principal loan amount and multiply it by your interest rate. Since APR is calculated by year, we will then divide this amount by 365 (or 366 for leaps years) days.
