Complicated Terms. Simple Definitions: Total Interest Percentage (TIP)
November 6th, 2015
A new line item in the Loan Estimate and Closing Disclosure is Total Interest Percentage (TIP). TIP refers to the total amount of interest you will pay over the loan term as a percentage of your loan amount.
TIP is calculated on a fixed rated mortgage as follows:
(Monthly P+I) X loan term (ex. 360 months) minus the loan amount = interest paid during the life of the loan
TIP = (interest paid during the life of the loan + pre-paid interest) / loan amount
TIP shows how much interest you will pay over the life of the loan in relation to the size of the mortgage. TIP is a bit complicated so I hope my explanation clarifies things for first-time homebuyers in Virginia Beach, Norfolk and Chesapeake.