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Mortgage Calculator Interest vs Principal

Mortgage EMI Breakdown:

\[ \text{Interest (month m)} = \text{Outstanding Balance} \times R \] \[ \text{Principal (month m)} = \text{EMI} - \text{Interest (month m)} \]

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1. What is Mortgage Interest vs Principal?

This calculator breaks down your monthly mortgage payment into interest and principal components. Each payment consists of both interest (cost of borrowing) and principal (amount that reduces your loan balance).

2. How Does the Calculator Work?

The calculator uses standard amortization formulas:

\[ \text{EMI} = P \times \frac{r(1 + r)^n}{(1 + r)^n - 1} \] \[ \text{Interest} = \text{Balance} \times r \] \[ \text{Principal} = \text{EMI} - \text{Interest} \]

Where:

Explanation: Early payments are mostly interest; over time, more of each payment goes toward principal.

3. Importance of Understanding Amortization

Details: Knowing how payments are split helps with financial planning, understanding loan costs, and evaluating prepayment benefits.

4. Using the Calculator

Tips: Enter loan amount, annual interest rate, and loan term in years. Results show payment breakdown and total costs.

5. Frequently Asked Questions (FAQ)

Q1: Why does interest decrease over time?
A: As principal reduces, the interest calculated on the smaller balance decreases.

Q2: How can I pay less interest overall?
A: Make extra principal payments or choose a shorter loan term.

Q3: What's the difference between interest rate and APR?
A: APR includes fees and other loan costs, while interest rate is just the borrowing cost.

Q4: Are there loans with different amortization?
A: Yes, interest-only loans or balloon mortgages have different payment structures.

Q5: How does refinancing affect amortization?
A: Refinancing resets the amortization schedule, typically extending the interest-heavy period.

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