1. What is Mortgage Interest?

Mortgage interest is the cost of borrowing money to purchase a property. It's calculated as a percentage of the loan amount and represents the lender's compensation for taking the risk of the loan.

2. How Does the Calculator Work?

The calculator uses the simple interest formula:

Where:

• \( P \) — Principal loan amount (dollars)
• \( r \) — Annual interest rate (decimal)
• \( t \) — Time period (years)

Explanation: This formula calculates the total interest paid over the specified time period using simple interest calculation.

3. Importance of Interest Calculation

Details: Understanding mortgage interest helps borrowers estimate their total loan cost, compare different loan offers, and make informed decisions about their mortgage options.

4. Using the Calculator

Tips: Enter the principal amount in dollars, interest rate as a decimal (e.g., 0.05 for 5%), and time period in years. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: Is this simple or compound interest?
A: This calculator uses simple interest calculation. Most mortgages use compound interest, but this provides a basic estimate.

Q2: How do I convert APR to decimal?
A: Divide the percentage rate by 100. For example, 5.25% becomes 0.0525.

Q3: Does this include additional fees?
A: No, this calculates only the interest portion. Actual mortgage payments may include taxes, insurance, and other fees.

Q4: Why use simple interest for mortgage calculation?
A: While mortgages typically use compound interest, simple interest provides a straightforward way to understand the basic cost of borrowing.

Q5: How accurate is this calculation for real mortgages?
A: This provides a simplified estimate. Actual mortgage calculations are more complex, considering compounding, amortization schedules, and payment frequency.