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Larger loans, like mortgages, personal loans and most auto loans, have an amortization schedule. With both simple and amortized interest loans, payments remain the same over the life of the loan.
The major variables in a mortgage calculation include loan principal, balance, periodic compound interest rate, number of payments per year, total number of payments and the regular payment amount. More complex calculators can take into account other costs associated with a mortgage, such as local and state taxes, and insurance.
U.S. mortgages use an amortizing loan, not compound interest. With these loans, an amortization schedule is used to determine how to apply payments toward principal and interest. Interest generated on these loans is not added to the principal, but rather is paid off monthly as the payments are applied.
It would take you 60 months (or five years) of $266.67 monthly payments to pay off the balance, and you’d end up paying $5,823.55 in interest over that time — about 37% of your total payments.
For example, consider a 30-year loan of $200,000 with a stated APR of 10.00%, i.e., 10.0049% APR or the EAR equivalent of 10.4767%. The monthly payments, using APR, would be $1755.87. However, using an EAR of 10.00% the monthly payment would be $1691.78. The difference between the EAR and APR amounts to a difference of $64.09 per month.
The effective interest rate (EIR), effective annual interest rate, annual equivalent rate (AER) or simply effective rate is the percentage of interest on a loan or financial product if compound interest accumulates in periods different than a year. [1] It is the compound interest payable annually in arrears, based on the nominal interest rate ...