What will this loan actually cost?

The number under the number

Every loan calculator gives you the monthly payment. It is the figure the lender leads with too, and for a good reason: it is the smallest, friendliest number in the transaction.

The one worth sitting with is the second one. On a thirty-year mortgage at a fairly ordinary rate, total interest routinely comes to more than the amount borrowed — you repay the house twice, once to the seller and once to the bank. That is not a scandal or a trick; it is what borrowing money for three decades costs. But it is worth having seen the figure before signing, and it is generally shown in small print if it is shown at all.

Why the balance barely moves at first

Interest is charged on what you still owe. At the start you still owe nearly everything, so nearly all of the first payment is interest and only a sliver reaches the debt. As the balance falls, the interest charge falls with it, and a larger share of the same payment starts landing on the principal.

The result is the curve in the chart above: almost flat for years, then falling faster and faster. The table shows the same thing in numbers — compare the first two columns in year one against year twenty.

This is also why overpaying early is worth so much more than overpaying late. An extra payment in year two removes interest for the whole remaining term; the same amount in year twenty-eight removes almost none.

The rate convention, and why it differs from the rest of this site

Every investment tool here treats a quoted annual rate as an effective rate: type 7% and your money is exactly 7% larger after twelve months. That is deliberate, and dividing by twelve there would overstate every projection.

Lending works the other way, and this page follows the lender. A quoted 6% means 0.5% charged each month, which compounds to 6.17% over a year. Using the effective conversion here would produce a monthly payment lower than any real lender charges — the calculator would disagree with your actual mortgage offer, and your offer would be right.

So this tool divides by twelve on purpose, and shows you the effective figure underneath so the gap is visible rather than hidden. If you have ever wondered why an advertised rate and an APR differ, this is a large part of it.

What this deliberately leaves out

• Fees. Arrangement fees, valuation fees and early-repayment charges vary by lender and product. A quoted APR usually folds some of them in; this calculator works from the interest rate alone.
• Rate changes. The whole term is priced at one fixed rate. If yours is variable or fixed only for an initial period, treat the result as the answer to “what if this rate lasted” rather than a projection.
• Tax. Interest relief and deductibility differ by country and by what the loan is for. This calculator does not model tax; the take-home pay calculator does, for the jurisdictions it names.
• Insurance, service charges and anything bundled into the payment by the lender. This is the loan alone.

Not advice. This tool applies arithmetic to assumptions you entered. It does not know your circumstances, your tax position or your goals, and it is not a recommendation to buy, sell or hold anything. Past returns do not predict future ones, and no figure here is a forecast.