About the home loan calculation
A home loan is the largest and longest borrowing most people ever take on, which makes the total interest figure far more important than the monthly payment everyone focuses on. Over a typical 20-year term you often repay roughly twice what you borrowed, so a small change in rate or term moves a very large number.
Formula
Same amortisation formula as any fixed-rate loan:
Monthly payment = P × i × (1+i)ⁿ ÷ ((1+i)ⁿ − 1)
Interest in month 1 = outstanding balance × monthly rateWorked example
On 1,000,000 at 8.5% over 20 years the payment is 8,678. The first instalment contains 7,083 of interest and only 1,595 of principal — after a full year the balance has barely moved.
Frequently asked questions
Should I choose a shorter term or invest the difference?
Compare the loan rate against the return you realistically expect after tax. If your mortgage costs 8.5% and you expect 7% from investments, repaying faster wins on pure arithmetic. If the loan is cheap relative to expected returns, investing can win — but the loan return is guaranteed and the investment one is not.
Does this include property tax, insurance or maintenance?
No. This calculates loan repayment only. Property tax, building insurance, maintenance and society charges are real recurring costs and are often quoted separately from the mortgage payment.
What if my rate is variable?
This assumes a fixed rate for the whole term. On a floating-rate loan the payment or the term changes when the benchmark moves. Run the calculation again at two or three percentage points higher to see whether you could still afford it.
How much deposit should I put down?
A larger deposit reduces the amount borrowed and therefore the interest, and often unlocks a better rate. Enter the amount you would actually borrow — property price minus deposit — as the loan amount here.
Sources
- Standard fixed-rate amortisation