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Mortgage Borrowing Cost Formula:
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The Total Cost Of Borrowing represents the actual amount you pay beyond the principal amount borrowed for your mortgage. It includes all interest payments and any additional fees over the life of the loan, providing a clear picture of the true cost of your mortgage.
The calculator uses a simple formula:
Where:
Explanation: This calculation reveals the actual cost of borrowing by subtracting the original loan amount from the total amount paid over the mortgage term.
Details: Understanding the total cost of borrowing helps homeowners make informed financial decisions, compare different mortgage offers, and plan long-term financial strategies. It reveals the true expense of home ownership beyond the purchase price.
Tips: Enter the original principal amount and the total of all mortgage payments you will make over the loan term. Both values should be in the same currency for accurate results.
Q1: What is included in the total payments?
A: Total payments include all monthly mortgage payments (principal + interest) made over the entire loan term, plus any additional fees or charges.
Q2: Does this include property taxes and insurance?
A: Typically, this calculation focuses on the mortgage itself. Property taxes, insurance, and other escrow items are separate costs not included in this calculation.
Q3: How does loan term affect the total cost?
A: Longer loan terms generally result in higher total borrowing costs due to more interest payments, even if monthly payments are lower.
Q4: Can I reduce my total borrowing cost?
A: Yes, through strategies like making extra payments, refinancing to a lower interest rate, or choosing a shorter loan term.
Q5: Is this calculation affected by early repayment?
A: Yes, making additional payments or paying off the mortgage early will significantly reduce your total borrowing cost by decreasing the amount of interest paid.