What is an Interest Rate and How is It Calculated?
A common question Bills.com hears is, "What exactly is an interest rate and how is it calculated?" The reason driving this curiosity is easy to understand. Throughout 2010, home loan deals are lucrative, which is attracting first-time home-buyers to the market. Regardless of a person's current financial situation, many homeowner's want to become better informed since they stand a good chance of saving money by refinancing or getting a first mortgage in today’s market. Home prices are attractive and interest rates fell far lower than most experts expected.
In answer to the first part of the question, an interest rate for a mortgage is just an annual percentage added to a loan each year. This fee is usually paid monthly and is factored into the mortgage payment itself.
The answer to the second part of the question is a little more difficult. Interest is calculated by taking several factors into consideration:
- The amount of the loan.
- The percentage of interest in the loan contract.
- Any external factors that play into your specific situation.
By taking these factors into consideration, you can calculate the amount of interest you pay. If you have further questions about your interest rate, consider asking Bill, the resident Bills.com expert.