Calculating the true cost of your loan can help you organize your home finances and plan your financial future and how you spend your money. Once you determine how much you’ll pay overall for your loan, you’ll be able to have a better grasp of where your money will go and can decide to pay more or less in your mortgage payments to improve your financial position.

First, determine how much interest you’ll pay over the life of your loan. Your lender will be able to help you with this, if you wish. If your mortgage requires an interest rate of 6 percent and your home loan is $100,000, you’ll pay about $6,000 in interest payments over the first year of your loan. The amount of your interest payments will decrease, as you pay off the principle of your mortgage. With a 30 year loan, more of your monthly mortgage payments in year number 25 will go toward principle than will of your mortgage payments in year number 10.

Once you determine how much interest you’ll pay on your mortgage, add that amount to the total amount of your loan and the closing costs and fees of your loan, and you’ll have calculated the true cost of your loan.

Once you’ve determined the true cost of your loan, you can manipulate these figures. If you make a balloon payment against the principle balance of your loan, your loan amount owed will be drastically smaller and thus your interest payments will be less. With the scenario, the total cost of your loan then is reduced.

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