1. What is Flat Rate Mortgage?

The Flat Rate Mortgage is a simple interest calculation method where interest is calculated on the original principal amount throughout the loan term, regardless of payments made.

2. How Does the Calculator Work?

The calculator uses the flat rate mortgage formulas:

Where:

• \( P \) — Principal loan amount (USD)
• \( r \) — Annual interest rate (decimal)
• \( t \) — Loan term in years
• Total Payment — Total amount to be repaid
• PMT — Monthly payment amount

Explanation: The interest is calculated as simple interest on the original principal for the entire loan term, then added to the principal to determine total repayment.

3. Importance of Flat Rate Calculation

Details: Flat rate calculations are commonly used for personal loans and short-term financing. They provide a straightforward way to understand total repayment costs.

4. Using the Calculator

Tips: Enter principal in USD, annual interest rate as decimal (e.g., 0.05 for 5%), and loan term in years. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: How does flat rate differ from reducing balance?
A: Flat rate calculates interest on original principal throughout the term, while reducing balance calculates interest on the remaining principal.

Q2: Which loans typically use flat rate interest?
A: Personal loans, auto loans, and short-term business loans often use flat rate interest calculations.

Q3: Is flat rate better than reducing balance?
A: Flat rate results in higher interest costs compared to reducing balance for the same nominal rate and term.

Q4: How can I convert flat rate to effective interest rate?
A: The effective rate is higher than the flat rate. A rough estimate is: Effective Rate ≈ 2 × Flat Rate × (Term in years)/(Term in years + 1).

Q5: Why do lenders use flat rate instead of reducing balance?
A: Flat rate is simpler to calculate and understand, and it generates more interest income for lenders compared to reducing balance.