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Interest Paid Formula:
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The Interest Paid Formula calculates the total interest paid over the entire mortgage tenure. It helps borrowers understand the true cost of borrowing beyond just the principal amount.
The calculator uses the interest paid formula:
Where:
Explanation: This formula calculates the difference between the total amount paid over the loan term and the original principal, which represents the interest cost.
Details: Understanding total interest paid helps borrowers make informed decisions about loan terms, compare different mortgage options, and plan their finances more effectively.
Tips: Enter your monthly EMI payment, the total number of payments (loan term in months), and the original principal amount. All values must be positive numbers.
Q1: Why is the interest amount often so high compared to the principal?
A: Due to the compounding effect of interest over long loan terms (typically 15-30 years), the total interest can exceed the original principal amount, especially in the early years of the mortgage.
Q2: How can I reduce the total interest paid on my mortgage?
A: Making extra payments, choosing a shorter loan term, or refinancing to a lower interest rate can significantly reduce the total interest paid over the life of the loan.
Q3: Does this calculation work for all types of loans?
A: This formula works for fixed-rate mortgages and other installment loans where the payment amount remains constant throughout the loan term.
Q4: Why is my calculated interest different from what my lender shows?
A: Small differences may occur due to rounding, fees, or insurance costs that are included in your payment but not part of the principal or interest components.
Q5: How does making extra payments affect total interest?
A: Extra payments directly reduce the principal balance, which decreases the amount of interest that accrues over the remaining life of the loan, potentially saving thousands in interest.