Question 1

How is my monthly loan payment calculated?

Accepted Answer

Your monthly payment is calculated using the standard amortization formula: M = P × [r(1+r)^n] ÷ [(1+r)^n − 1], where P is the loan principal, r is your monthly interest rate (annual rate ÷ 12), and n is the total number of monthly payments.

Question 2

What is an amortization schedule and why does it matter?

Accepted Answer

An amortization schedule shows every monthly payment over the life of your loan, broken down into interest and principal. In early years, most of your payment goes to interest. Over time this flips, and more goes to principal.

Question 3

How much can I save by making extra monthly payments?

Accepted Answer

Extra payments reduce your principal faster, cutting total interest significantly. On a $300,000 mortgage at 6.5% over 30 years, adding $300/month extra can save over $90,000 in interest and pay off the loan nearly 8 years early.

Question 4

What is the difference between interest rate and APR?

Accepted Answer

The interest rate is the base cost of borrowing. APR (Annual Percentage Rate) includes the interest rate plus fees like origination charges, giving a more complete picture of the loan's true cost. Always compare APRs when shopping for loans.

Question 5

What is PMI and when can I stop paying it?

Accepted Answer

PMI (Private Mortgage Insurance) is required when your down payment is less than 20%. It can be cancelled once your loan balance reaches 80% of the original home value, and lenders must automatically cancel it at 78% by law.

Question 6

Should I choose a 15-year or 30-year mortgage?

Accepted Answer

A 30-year mortgage offers lower monthly payments but costs more in total interest. A 15-year mortgage has higher payments but saves tens of thousands in interest. Use the Compare feature in DIYLoanCalc to see the exact difference for your numbers.

Frequently Asked Questions