Question

What is the calculation used to determine the estimated annual interest amount a borrower will pay on a loan?

Answer 1

The calculation used is mentioned as

$Annual\ Interest\ Amount\ =\frac{Loan\ balance\ X\ Interest\ Rate}{12}$.

What is Annual Interest Amount?

• An interest rate is written as an annual percentage rate. It factors in variables like monthly payments to determine what proportion of something like the principal you'll be  paying yearly. APR is another term for the yearly rate of interest payable on investments that does not take into account the annual compounding of interest.
• What you still owe just on mortgage principal is known as the loan balance. The loan balance is calculated as the difference here between initial mortgage balance and the sum of your principal payments. It's crucial to be aware of your loan's balance.
• An interest rate indicates how expensive borrowing is or how lucrative saving is. Therefore, if you are a borrower, the interest rate refers to the amount you pay for borrowing money and is expressed as a percentage of the overall loan amount.

The calculation used is illustrated as :

$Annual\ Interest\ Amount\ =\frac{Loan\ balance\ X\ Interest\ Rate}{12}$

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