## Counting on loans – How to calculate the monthly cost It is always good to know how you calculate the interest cost and how much you need to repay on the mortgage every month. If you are not an economist it may sound tricky, but it is much simpler than you can actually imagine.

## Monthly cost and total cost The monthly cost of a loan consists of the total amount when adding interest, amortization and any fees together.

The total cost of the loan is the sum of all monthly expenses.

### How do you calculate the interest cost?

The easiest way to calculate how much your interest cost will be is to use a simple formula:

Loan amount x interest rate = interest expense.

For example, if you want to borrow \$ 10,000 and the interest rate is 7% per year, the result will be the formula above:

• 10,000 x 0.07 = 700.
• Your interest cost will thus be \$ 700 per year.

### How do you calculate interest per month?

If you want to know what your interest cost will be per month, divide the annual interest cost by 12 (the number of months in a year). According to the example above, the interest cost per month is 700/12 = 58.33. You must therefore pay \$ 58.33 per month in interest.

However, the formula and example above do not take into account that you are repaying the loan. When you repay your debt, you don’t pay as much in interest each month.

## Straight amortization or annuity loans There are two common ways to set up the loan – annuity loans or loans with straight amortization. Whether you choose straight amortization or annuity determines how you repay the loan.

With straight amortization, your amortization is constant every month. This means that you can divide your debt by your repayment period. E.g. For a loan of 100,000 \$ – laid down on a 5 year repayment period, the repayment will be 100000/60 = \$ 1667 / month.

In the case of annuity loans, your amortization is increasing every month. This means that you initially pay a relatively low repayment, and then become higher during the loan repayment period. To calculate amortization on annuity loans a complex formula is required, therefore we recommend our loan calculation for this.

## payback Of course, how long the repayment period you choose on a loan affects how much you have to pay each month in interest and amortization. A long repayment period results in lower monthly costs. There is also something called an amortization-free loan. Many at the same time wonder what amortization-free means. The simple explanation is that there is no compulsion to repay, but that the loan must at some point be repaid. In theory, these loans can be left alive.

### Pay off loans early

Even if you have a repayment plan that tells you to pay off your loan at a certain time, you are always entitled to repay the loan in advance. If you have taken out a loan with a variable interest rate, which is the most common when it comes to private loans, free amortization rights apply, so you do not have to pay any interest payment compensation. Interest rate compensation, often abbreviated as RSE, is always added to the settlement of private loans with a fixed interest rate or a fixed mortgage.

## Calculate the amortization requirements On June 1, 2016, the amortization requirement was introduced in Sweden. The idea is to counteract the increasing indebtedness of households. It works so that borrowers who take out mortgages and borrow more than 50% of the value of the home must repay the loan. If the loan is more than 70% of the value of the property, you must repay at least 2% per annum. For loans that are 50-70% of the value of the home, 1% is to be repaid annually.

## Formula for amortization requirements To find out how much you least need to repay per month, you can use the following formula. Keep in mind that this is the minimum rate of amortization that applies. Your bank may place more stringent requirements on repayment.

To get what you need to pay off per month, you divide the minimum payout per year by 12:

• Loans in excess of 70% of the value of the home.
• Loan amount x 0.02 = minimum repayment per year.
• Loans of 50-70% of the value of the home.
• Loan amount x 0.01 = minimum amortization per year.

### Example

For example, if you have a mortgage loan of \$ 2,000,000 on a condominium that is worth \$ 2,500,000, you have borrowed 80% of the value of the home. Since you have loans in excess of 70% of the value, you must repay at least \$ 40,000 per year, or \$ 3,333 per month. This applies until you have either repaid until the loan corresponds to less than 70% of the value of the home, or if your home has increased in value and you require a revaluation.

## Borrow money with Astro Finance When you take out a mortgage, it is always smart to compare what you can get for interest rates and terms at the various banks. You should also do this if you are going to take out a private loan. All banks specialize in different types of customers. It is therefore not possible to say that one bank is better than another when it comes to loans. Therefore, it is important to compare different loan offers to find which bank suits you best!

If you as a private individual go to several different banks to compare the terms, they each take credit information on you. This affects your credit rating and can impair your ability to get a really low interest rate. If you choose to compare with Astro Finance, only one credit report is made. The service is completely free of charge and you do not commit to anything when you make a comparison. Instead, Astro Finance gets paid directly by the bank or lender when we help them get a new satisfied customer.