Mortgage Math, Understanding Your Mortgage

Mortgage Math
Understanding your Mortgage!

When you close on your new mortgage, your loan papers state the interest rate that you will be paying for your loan. But is that interest rate really as good as it looks?

Out of your monthly payment that you faithfully make each month, do you know how much of that amount is actually going towards interest?

Your Mortgage is what is called a “closed end Loan” this means that the bank will only apply monies once a month to this type of loan and will only apply a full payment to adjust the principal balance.

Understanding this will help you understand how your Mortgage works.

For this Example we are going to use a $200,000 Mortgage for 30 years at 6% Interest.

Closed End Loan

$200,000 Principal Loan Amount
6% Interest
$1,199.00 Monthly Payment
X 360 Months (30 year loan)

$431,766 Total Repayment

-$200,000 Principal Loan Amount

$231,677 Total Interest Paid

As you can see here at the end of the Loan, (Assuming that all payments were made on time), the $200,000 Loan (with Principal and Interest) would cost $431,677 at the end of the Term.

During the signing of your loan papers, you will have noticed a large sum of money being disclosed (over twice the size of your $200,000 mortgage) which indicates the amount of interest and principal you would be paying over the life of your loan. For example, if you have a 30-year fixed loan for $200,000 at an interest rate of 6%, over the next 30 years, you would have paid $431,677 to your lender. You only borrowed $200,000!

The majority of your hard earned money is actually going to interest payments. To verify this, take your current monthly payment (principal and interest only), and multiply it by 360 for a 30-year loan and Subtract your principal loan amount, and you'll see the total amount of interest that your lender would receive over 30-years. That’s the interest that is going to the Bank. This is money that should be working for you and building you wealth.

In America, the average person moves every 5 to 7 years. I don't know about you but when most people move into a new house, they get a new mortgage and go right back to making payments where 90% of the amount is going towards interest.

Think of it like this. If you have a 30-year fixed, $200,000 mortgage at 6% interest and you move after 5 years, you will still owe 93% of your original loan or $186,108. Of the $71,946.00 dollars you have paid over 5 years, you will only have reduced the principal by $13,891.00 because most of your payment for the first 5 years goes towards interest.

After 10 years of payments, (120 payments) you'd still owe about 84% of your mortgage balance.

It takes 21 Years of Payments to get to half of the Equity, and it cost the Homeowner $300,974.00 to get there.

This is how Interest on Your Mortgage works! Do you really think you are paying 6% interest, “I don’t think so” the only time that you pay 6% is on the last payment.

$200,000 principal Balance
6% Interest Rate
$1,199.00 Monthly Payment

Month 1 Principal $199.10, Interest $1,000.00
Month 2 Principal $200.10, Interest $999.00
Year 1 Prin. $210.33, Int. $988.77, Bal. $197,543, Eqty. $2,457, Paid $14,389
Year 5 Prin. $267.22, Int. $931.88, Bal. $186,108, Eqty. $13,891, Paid $71,946
Year 10 Prin. $360.44, Int. $838.66, Bal. $167,371, Eqty. $32,628, Paid $143,891
Year 21 Prin. $696.23, Int. $502.89, Bal. $100,573, Eqty. $99,436, Paid $300,947

Do you really want to work thirty years to give your lender such a large chunk of your hard earned money?

So what is the solution? Do you have a plan to be debt free?
No matter your income or expenses, it can be achievable for you. Find out where you are now, identify where you want to be in 5 years and make a plan to get there. Start your debt-free plan today, include your mortgage and build your future wealth, not someone else's.

“People who understand Interest Earn It those who don’t Pay It”

Wrap Your Mind Around this Concept…

“If there was a way to pay off your Mortgage and other Consumer Debt in a fraction of the time…

• Without having to refinance your Existing Mortgage!
• Without Having to Increase your current Mortgage payment!
• Without using a biweekly or Debt roll down program!
• With little to no changes in your current lifestyle!

Would you be Interested in learning More?

You know how when you use a credit card and pay it off in full at the end of the month, and the bank doesn’t charge you any interest. Well, There is a way to use the banks money at very little to no interest, (and to Re-capture money that we’ve been letting the banks, mtg. companies, and other lenders, use Interest Free), to pre-pay principle on your mortgage and other Consumer Debt.

And you realize what that does right? Financial Freedom!