Home Loan Interest Rate

By: EconomyWatch Content   Date: 28 December 2009

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The home loan interest rate is the price that borrowers pay for using the borrowed money. It is paid to the lending institution that offers the home loans. The borrower makes monthly payments that include principal and interest amount. The amount of money paid as principal goes towards reducing the original loan.

 

The home loan interest amount typically accounts for around half of the monthly payment for the first five to ten years of a loan. After the home loan amortization takes place, you will pay more amount of money towards the principal while the amount of money paid towards interest reduces. This is because the amount of home loan interest lowers when the principal balance is lowered.

Every borrower is provided a truth in lending disclosure document that contains details regarding home loan interest rate, the total amount of interest, amortization schedule and the total amount a borrower must pay during the term of the loan.

 

Home Loan Interest Rate: Types

The two basic types of home loan interest rates are fixed interest rate and floating interest rate. In case of fixed interest rate, the same amount of interest is charged throughout the life of the loan. However, the amount of interest charged on a floating rate home loan fluctuates with changes in the national index. You may also find a floating rate that fluctuates initially and becomes fixed later on; while others start out as fixed and may fluctuate after a certain period.

 

It is important to note that no home loan comes without interest rate. While the primary home loan interest could be 100% tax deductible in most cases, the interest on second mortgage might also be tax deductible. The federal government requires all mortgage lending institutions to send the borrowers a statement at the end of every tax year. This statement outlines the amount of money you paid as interest on your home loan.

Home Loan Interest Rate: Calculator

 

A home loan interest rate calculator is a free online tool that enables borrowers to determine how much they can afford to pay. You can calculate your monthly payments using a home loan interest rate calculator.

The calculator requires the following inputs:

  • The total loan amount

  • The interest rate

  • The length of the loan

 


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