Types

• Mortgages come in two main types: fixed rate and variable rate. Under a fixed rate of interest, the amount of interest on monthly payments stays consistent across the life of the loan. Under variable interest rates, the rates fluctuate, usually pegged to the movements of an index measuring the prevailing market rates for interest. Some loans begin at a fixed rate and then move to an adjustable rate.
  
  

Interest Rates For Fixed-Rate Mortgages

• Calculating the cost of interest on a fixed-rate mortgage is relatively easy. Simply take the cost of the house and subtract the down payment. Then, divide this number by the number of payments across the life of the loan. For example, a 20-year loan with payments in monthly installments would include 240 payments. Multiply this number by the rate of interest. Then, multiply the product by the number of payments again. The final number is how much you will pay in interest across the life of the loan.
  
  

Interest Rates For Adjustable-Rate Mortgages

• Calculating adjustable rate mortgages is trickier, as it require the buyer to guess that the prevailing interest rate will be in the future. If possible, buyers consult with a financial adviser for his predictions on the interest rates for the coming years. Once you have determined the average rate of interest over the life of the loan, use the above formula and replace the fixed-rate rate with this rate. Make sure to allow some room for error, as the precise rate of interest can't be predicted.
  
  

Inflation

• When factoring in the true cost of a mortgage, buyers must also factor in inflation. When a unit of currency declines in value (i.e. where a single unit is able to purchase fewer goods and services) the currency is said to undergo inflation. Like the rate of interest on a adjustable-rate mortgage, you can only estimate the rate of inflation. Consult a financial adviser or historical charts of inflation to develop a good estimate.
  
  

Fees

• All mortgages require that buyers pay a host of fees. Among them are loan origination fees, appraisal fees, home inspection fees, private mortgage insurance, and FHA fees. These fees can add up into the thousands of dollars and should be considered an added cost on the loan.