Interest is calculated daily and charged monthly by the lender. As your principal decreases, so does the interest you pay.
Here’s a quick breakdown:
For a $500,000 principal-and-interest loan:
● Interest is first calculated on the full $500,000.
● After repaying $15,000 in one year, interest is charged on $485,000.
● The principal doesn’t decline evenly. Early on, most payments go towards interest.
For example:
● After 5 years = about 94% of the principal remains.
● After 10 years = 85%.
● After 20 years = 56%.
● After 30 years = 0%.
Interest-Only Loans:
● During the first five years of an interest-only loan, only interest is paid, so the principal remains the same.
● After 5 years = 100% of the principal remains.
● After 10 years = 91%.
● After 20 years = 59%.
● After 30 years = 0%.
Want to pay less interest over the life of your loan?
1. Make extra repayments to reduce your principal faster.
2. Use an offset account to lower the amount you’re charged interest on.
💡 For example, if you have $470,000 remaining on your loan and $10,000 in your offset account, you’ll be charged interest on only $460,000. But remember, if you withdraw from the offset account, interest will be charged on the full loan amount.
Understanding these key points can help you save on your home loan over time! 📉💼
#HomeLoan #MortgageTips #InterestRates #FinancialTips #OffsetAccounts
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Understanding how interest is calculated on your home loan.