1. What is the Mortgage Interest Rate?

The mortgage interest rate represents the cost of borrowing money to purchase a home, expressed as a percentage of the loan amount. It determines how much interest you'll pay over the life of your mortgage.

2. How Does the Calculator Work?

The calculator uses the simple interest rate formula:

Where:

• \( Total\ Interest \) — Total interest paid over the loan term
• \( Principal \) — Original loan amount

Explanation: This formula calculates the effective interest rate by comparing the total interest paid to the original loan amount.

3. Importance of Interest Rate Calculation

Details: Understanding your effective interest rate helps you compare different loan offers, evaluate refinancing options, and understand the true cost of your mortgage.

4. Using the Calculator

Tips: Enter the total interest paid (or to be paid) and the original loan amount. Both values must be positive numbers, with the principal greater than zero.

5. Frequently Asked Questions (FAQ)

Q1: Is this the same as the APR?
A: No, this is a simplified calculation. APR includes additional fees and costs associated with the loan.

Q2: Why is my effective rate different from my stated rate?
A: The effective rate accounts for the total interest paid over the loan term, which can be higher than the stated rate due to compounding.

Q3: How does loan term affect the interest rate?
A: Longer loan terms typically result in paying more total interest, which would increase the effective rate in this calculation.

Q4: Should I include points in the total interest?
A: Yes, points paid at closing should be included in the total interest calculation as they represent prepaid interest.

Q5: Can I use this for adjustable-rate mortgages?
A: This gives an overall effective rate, but for ARMs it won't reflect future rate changes.