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Mortgage Interest<br />
Interest is the fee charged by the lender for borrowing their money. It is charged<br />
at a percentage of the loan amount, called the principal. The interest rate is stated<br />
for a term of a year. Lenders use 360 or 365 days in a year to simplify the<br />
computation. When calculated, the principal amount is multiplied by the interest<br />
rate then by the length of time. An example of interest calculation:<br />
Principal (Loan Balance): $100,000<br />
Interest Rate: 6%<br />
Period: 6 months<br />
Calculation:<br />
$100,000 x 0.06 x (6/12) - $3,000<br />
Interest on a loan is paid in arrears, meaning: for the previous month. An example<br />
would be: Your payment due on September 1st is for the month of August.<br />
When closing your loan, you must bring in, as a part of your closing cost, the<br />
interest for the remaining days left in the month. You will not make a payment<br />
on the 1st day of the next month.*<br />
*(unless it is an interest credit back, then it is possible)<br />
Because interest is paid in arrears, your first mortgage payment will be after the<br />
next full month.<br />
Austin Lampson, NMLS #517060 | On Q Financial | austin@austinlampson.com | 805.335.8200
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