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Frequently Asked Questions
How is a monthly loan payment calculated?
The formula is: M = P × r(1+r)^n / ((1+r)^n - 1), where P is principal, r is monthly interest rate, and n is total payments. A $200,000 loan at 6% for 30 years: M = $1,199.10 per month.
What is the difference between APR and interest rate?
The interest rate is the cost of borrowing the principal. APR (Annual Percentage Rate) includes the interest rate plus fees, points, and other charges, giving the true annual cost. APR is always equal to or higher than the interest rate.
How does loan term length affect total cost?
Shorter terms have higher monthly payments but lower total interest. A $200,000 loan at 6%: 15-year term costs $104,106 in interest with $1,687/month payments. 30-year term costs $231,677 in interest with $1,199/month payments.
What is an amortization schedule?
An amortization schedule shows each payment broken into principal and interest portions. Early payments are mostly interest. For a $200,000 loan at 6%: first payment is $199 principal + $1,000 interest. Last payment is $1,193 principal + $6 interest.
How do extra payments reduce loan cost?
Extra payments go directly to principal, reducing the balance faster and saving interest. Adding $100/month to a $200,000 loan at 6% saves $46,000 in interest and pays off the loan 5 years early.