How the calculator works (Loan vs Savings)

This tool is two calculators in one because “interest rate change” affects borrowing and saving in opposite directions. When you borrow money, a higher interest rate usually makes your payment higher and increases total interest. When you save or invest, a higher rate can increase your growth and final value.

The calculator compares an old interest rate and a new interest rate. It then computes the outcome under each scenario using standard finance math and shows the difference. This is the fastest way to answer questions like: “How bad is a +0.50% increase?” or “Is a 1% refinance drop worth it?”

Most installment loans (mortgages, auto loans, personal loans) are amortizing loans: each monthly payment contains some interest and some principal. The payment is designed so the balance reaches zero at the end of the term.

We use the standard amortization payment formula:

• P = principal (loan amount)
• APR = annual interest rate (percent)
• r = monthly rate = (APR ÷ 100) ÷ 12
• n = number of payments = years × 12

Monthly Payment = P × r × (1 + r)ⁿ ÷ ((1 + r)ⁿ − 1)

We calculate that payment twice: once with the old rate and once with the new rate. The monthly difference is what you feel in your budget.

The payment is only part of the story. Over time, interest adds up. A simple lifetime estimate is: Total Interest = (Monthly Payment × n) − P. This gives a clear “all-in” interest cost for the whole term at each rate, and the difference between them.

If you’re saving instead of borrowing, the direction flips: higher rates usually mean more growth. To keep things consistent and understandable, the calculator uses a simple monthly compounding model: Future Value = P × (1 + r)ⁿ, where r is monthly rate and n is months.

In the real world, banks can compound daily and credit interest monthly. That can change the exact cents, but it won’t change the big conclusion: a higher APY grows your balance faster over time.

If you enter an extra monthly payment, we simulate the balance month-by-month. This shows an important truth: sometimes small extra payments can beat a small rate drop in total-interest savings, especially if you’re early in the loan when interest makes up most of the payment.

Examples (copy these to test quickly)

Example 1 — Mortgage rate increase

You borrow $300,000 for 30 years. Your rate moves from 6.25% to 7.00%. That’s only 0.75%, but the monthly difference is often big enough to feel like a new recurring bill. The lifetime interest difference can be tens of thousands.

Example 2 — Refinance rate decrease

Your current mortgage is 7.25%. A lender offers 6.25%. The payment drops, but you might pay closing costs. Use this calculator to estimate your monthly savings, then divide your closing costs by the monthly savings to estimate a rough “break-even month.”

Example 3 — Savings APY drop

You keep $20,000 in savings for 1 year. If APY drops from 5.00% to 4.00%, the difference might look small, but it is real money you don’t earn. Over multiple years, the gap compounds and becomes more noticeable.

• 25 bps = 0.25% (a common “small move”)
• 50 bps = 0.50%
• 100 bps = 1.00%

Want to make this viral? Try a 1.00% move on a $350,000 30-year mortgage and share the monthly change with the caption: “This is why everyone cares about rates.”

A practical decision flow

• Step 1: Enter your amount and term.
• Step 2: Enter your old rate and new rate (try a few “what if” scenarios).
• Step 3: Look at monthly difference for budget impact.
• Step 4: Look at total interest difference for long-run cost.
• Step 5: If refinancing, compare monthly savings to closing costs for break-even.
• Step 6: If saving, look at the future value gap and consider rate-shopping.

For adjustable-rate loans, repeat the calculation at several future rate levels (current, +1%, +2%) to build a “rate shock” plan. This makes a scary future scenario measurable and manageable.

Frequently Asked Questions

• Does this use APR or APY?

  In loan mode, treat the input as APR and we convert it to a monthly rate. In savings mode, we use a monthly compounding approximation. Banks may compound daily; your exact cents may differ.

• Why does a small rate change cause a big payment change?

  Because the interest portion is applied to a large balance for many months. The payment must be high enough to pay interest and reduce principal to zero by the end. Higher rates raise the interest share, so the payment increases.

• Does it include taxes, insurance, PMI, or fees?

  No — this is principal + interest only. Mortgage taxes and insurance can be significant and vary by location and policy.

• Can I use this for credit cards?

  Credit cards are revolving balances with minimum payment rules. Use a credit card interest or payoff calculator for accuracy. Still, this tool helps build intuition for how rate changes affect interest cost.

• What if my payment doesn’t cover interest?

  If your payment is too low (rare for standard amortizing loans, but possible in edge cases with extra-payment simulations), your balance can grow (negative amortization). The calculator warns if that happens.

• What’s the most shareable comparison?

  A 1% move on a common mortgage amount (like $250k–$400k over 30 years). People instantly understand the monthly difference.

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