How it works
The Loan Comparison Shopping Worksheet helps you assess two different loan offers by calculating their total costs over the loan term. To determine the total cost of each loan, we use the formula: Total cost = (Monthly payment × 12 × years) + Closing fees. For instance, if you have a $250,000 loan with a 6.5% interest rate over 30 years and $3,000 in fees, the monthly payment can be calculated using a mortgage calculator or formula. This results in a monthly payment of approximately $1,580. Over 30 years, this amounts to $1,580 × 12 × 30 = $567,600. Adding the closing fees, the total cost for Offer 1 is $570,600. For Offer 2, with a 6.25% rate and $5,000 in fees, the monthly payment would be around $1,550, leading to a total cost of $559,600. By comparing these total costs, you can easily identify which offer is more economical.
Formula
Total cost = (Monthly payment × 12 × years) + Closing fees | APR includes fees in the effective rate.
Tips
- Always consider the APR, which includes both the interest rate and any associated fees, to get a true cost of the loan.
- Use the worksheet to calculate total costs for different loan amounts and terms to see how they affect your monthly payments.
- Don't just focus on monthly payments; evaluate the total cost of the loan to avoid hidden expenses.
- Negotiate with lenders to potentially lower fees or interest rates based on your creditworthiness.
Frequently asked questions
- What is included in the total cost of a loan?
- The total cost includes the sum of all monthly payments over the loan term plus any closing fees.
- How do I calculate the monthly payment for my loan?
- You can use a mortgage calculator or the formula for monthly payment, which considers the loan amount, interest rate, and term.
- Is a lower interest rate always better?
- Not necessarily; consider the total cost including fees. A lower rate with higher fees may not save you money overall.
- Can I use this worksheet for different loan amounts?
- Yes, simply input the new loan amounts and terms to see how they affect your total costs.