Interest on a mortgage is a term that usually refers to the interest rate that is charged by the lender on a loan, such as a mortgage. In reality, the actual interest rate paid to the lender is called the principal and interest. While this may seem straightforward, there are many factors that can cause the actual interest rate to change over time.
If you’re looking to buy or refinance your home, then there’s a good chance your interest rate will be higher than what you’re saving by saving a mortgage on a less than perfect home. If this is you, then it’s a good idea to start researching your options for refinancing your home. While refinancing your home is NOT the same thing as refinancing your entire mortgage, it can be the difference between being able to afford a better home in the long run or not.
Let it be clear to you clarinet! The calculation of a fee is always divided into: the part destined to amortize the mortgage and another dedicated to paying the interest on the mortgage, obtained from the amount that remains to be paid.
For this reason, at the beginning of the loan, a large part of the installment is used to pay interest and when the loan is almost over, the interest to be paid is very little!
Calculate interest on a fixed mortgage
Being a fixed mortgage, the installment will always be the same throughout all time. However, the interest on the mortgage will be higher and then will decrease until the payment is completed. To calculate the interest rate, a special calculation must be made: amount pending amortization x interest rate/12.
For example, imagine that you have a fixed rate mortgage at 2% of 200,000 euros for 25 years. The calculation would be:
- Calculation of the first installment: 200,000×0.2/12=333.333 euros of interest
- Calculation of the second installment: 198,988.23×0.02/12= 331.65 euros of interest.
- Calculation of the third installment: 197,976.46×0.02/12= 329.96 euros of interest.
So up to 300 installments and subtracting interest from what remains to be amortized!
Calculate interest on a variable rate mortgage
In this case, the Euribor determines the evolution of the monthly payment. The Euribor is the European reference indicator to calculate the rate of money!
The way to calculate it is the same, but the interest rate will change depending on the Euribor. In the event that the mortgage is variable, the calculations will be adapted according to the conditions. Normally, in the first or second year the conditions are fixed, becoming variable thereafter with an annual or semi-annual review. The interest to be paid will depend on how the Euribor is at the time of the review.
Amortization table request
If you don't feel like having a calculator in hand, you can request the amortization table from your bank. You are already going to BBVA to find out what is destined to be amortized and what is interest installment by installment!
Keep in mind that the amortization table will only be valid for fixed-rate mortgages or for mixed mortgages during the fixed tranche. At the time that the mortgage is variable, the amortization table will reflect the future reality. It is not something stable!
In addition, you can assess the capacity of early repayment. This formula consists of the mortgage advancing a part of the loan in advance. This is how debt is reduced! You have two options:
- You can reduce the term: in that case, you will finish paying the mortgage sooner and logically, by applying on less capital, you will face the payment of less interest.
- You can reduce the fee, even if the term of the mortgage is the same.
It's up to you!
No comments yet