Simple Interest Mortgage Calculator

What is a Simple Interest Mortgage?

A simple interest mortgage is a type of home loan where interest is calculated daily based on the outstanding principal balance. Unlike traditional mortgages that use compound interest, simple interest mortgages can potentially save borrowers money if they make payments early or additional payments to reduce the principal faster.

Formula for Simple Interest

The basic formula for calculating simple interest is:

\[I = P \times r \times t\]

Where:

• I = Total Interest
• P = Principal (Loan Amount)
• r = Annual Interest Rate (as a decimal)
• t = Time in years

Calculation Steps

1. Calculate the total interest using the formula above.
2. Add the total interest to the principal to get the total amount to be paid.
3. Divide the total amount by the number of months in the loan term to get the monthly payment.

Example

Let's consider a simple interest mortgage with the following details:

• Loan Amount (Principal): $200,000
• Annual Interest Rate: 4%
• Loan Term: 30 years (360 months)

Calculation:

1. Total Interest: $200,000 × 0.04 × 30 = $240,000
2. Total Amount to be Paid: $200,000 + $240,000 = $440,000
3. Monthly Payment: $440,000 ÷ 360 = $1,222.22