What factors affect the amount of interest you pay?

The following factors will affect the amount of your interest payments:

The mortgage interest rate. This is the rate at which the bank charges you interest on the loan. Even a
small difference in the interest rate can add up to thousands over the life of the loan.

The federal funds rate. The interest rate on your loan is loosely tied to the federal funds rate set by the
Federal Reserve, which dictates the rate at which banks lend money to each other overnight. If you have
a variable interest rate, paying attention to the federal funds rate can help you predict what your
interest rate will do.

The amount you borrow. The more you borrow from your bank, the more interest you’ll need to repay.
For example, 5% of $1 million will always be a larger amount than 5% of $500,000.

The outstanding loan amount. As you gradually pay off the money you borrow, you will be paying
interest on a smaller loan amount and your interest payments will slowly reduce.

The loan term. The time you take to pay off your loan will affect the amount of interest you pay —
paying your loan off over a shorter period of time will minimize your interest.

How is mortgage interest calculated?

Interest on your mortgage is generally calculated monthly. Your bank will take the outstanding loan
amount at the end of each month and multiply it by the interest rate that applies to your loan, then
divide that amount by 12.

Home loan interest calculationAssuming you have an outstanding loan amount of $500,000 and an
interest rate of 5% APR, your interest payment for one month would be calculated using the following
formula:

($500,000 x 0.05) ÷ 12 = $2083.33

Principal and interest vs. interest-only

There’s another factor that can affect your monthly mortgage payment: whether you’re making
principal and interest or interest-only payments. Principal and interest payments are the most common
way to pay off a home loan, and they basically mean that one portion of your monthly payment goes
towards paying off the amount you borrow and another portion goes to paying off the interest you owe.
However, some loans are designed to allow you to make interest-only payments for a certain period, for
example if you’re building a new home or if you’re a property investor with an investment mortgage.
This allows you to reduce your monthly payment amount.

Susie’s mortgage payments

How is home loan interest calculator case studySusie is borrowing $700,000 to buy a house and she
wants to save as much money on interest as she possibly can. She decides to calculate just how much
difference a 0.25% APR difference in interest rates could make to the total cost of a loan.

If she can find a loan with an interest rate of 4% APR on a 30-year loan term, her monthly principal and
interest payments will be $3,341.91. The total interest she will end up paying over the life of the loan is
$503,086.54.

But if Susie finds a loan with a marginally lower interest rate of 3.75% APR, her monthly payments will
be $3,241.81 and the total interest over the life of the loan will be $467,051.29 — that’s a total interest
saving of $36,035.25.

How to save interest on your mortgage

Now that you know a bit more about how interest is calculated let’s look at the ways you can actually
pay less of it.

Get the best rate. Shopping around for a better interest rate can save you thousands of dollars. If you
already own a home, you may want to consider refinancing with your current lender or switching to a
new lender.

Make frequent payments. Because there are a little over four weeks in a month, if you make biweekly
instead of monthly mortgage repayments, you’ll end up making two extra payments a year.

Make extra payments. The quicker you pay down your loan amount, the less interest you’ll need to pay
on your smaller outstanding loan amount. If you have a variable interest rate, you can save even more
by making extra payments when interest rates are low.

Choose a shorter loan term. The longer you take to pay off your loan, the more interest you’ll end up
paying. Remember, banks calculate interest on your loan amount daily, so choosing a 25-year loan term
instead of 30 years can make a big difference.
What Are the Different Types of Commission?
In a gross profit commision structure, a salesperson earns a percentage of the profit they
gross on a product, or the amount of money gained minus manufacturing costs. Other pay
structures include revenue commission, where you earn a fixed percentage of all revenue,
and revenue gates, which rewards salespeople who meet sales goals by paying them a
higher percentage the more they sell. In a placement fee structure, you earn a set fee for
every unit sold.

Types of Sales Commission Plans

To help you gain a better understanding of the type of sales commission plans that
are being used, we’ve put together the following list:

1. Commission on gross profit:

Under this form of commission, you will receive a commission percentage of the
gross profit on a sale. So, the higher the profit margin on the sale, the more
commission you will earn.

2. Sales revenue commission:

You receive a pre-defined percentage of all the sales you make. So, the more sales
you make during a pay period, the higher the commission cheque you will receive.

3. Placement fees:
This is a set fee you will receive per sale. For example, if the placement fee is $10,
you will receive $10 each time you make a sale, incentive for you to sell as many
units as possible.

4. Performance gates:
The more you sell, the higher commission percentage you will receive. Often, there
are a number of revenue tiers, and each time you achieve a certain number of sales
or revenue targets, your commission will increase.

In addition to the plans mentioned above, there are also many hybrid versions that
use elements of each.

It’s important for you, as a sales rep, to have a deep understanding of the
commission plan that is part of your compensation package. Know what is required
of you and how commission can impact your pay before accepting a sales role.
Regardless of the commission structure used by an employer, “the worth of a
commission plan is based on two factors: The products or services being sold and
the sales professional who is doing the selling,” says Thomas Phelps on the balance.