SL 7: Paying Your Mortgage Upfront

Not much of the mortgage loan gets paid off in the first few years of your repayment plan.

You start out by paying mostly interest with a little amount left over to reduce the principal.

Example:
calculate how much of the loan is paid off after 12 months on a mortgage loan at:

$100,000 | 6%APR | 30 Yr Term

Let's explain it this way:

Month	Starting Balance	Monthly Payment	Interest	Principal
1	$100,000.00	$599.55	$500.00	$99.55
2	99,900.45	599.55	499.50	100.05
3	99,800.40	599.55	499.00	100.55
10	99,085.92	599.55	495.43	104.12
11	98,981.79	599.55	494.91	104.64
12	98,877.15	599.55	494.39	105.16
Total After 1 Year:		$7,195	$5,967	$1,228

 

In the illustration after 1 year, you only reduced your mortgage loan balance by: $1,228

Such a small reduction in principal forces you to pay mostly interest in the first few years of your repayment plan.

In fact, after 60 payments (5 years), you have only reduced your mortgage loan balance by: $6,946. You still owe $93,054 on the original amount of $100,000.

You must wait at least 18-23 years before you reduce your mortgage loan balance in half.

 

Reducing the Loan Balance Fast

You need to reduce the mortgage balance up-front in order to get more of your mortgage payment paying principal. For example, what if you made a $5,000 up-front payment:

$100,000 Mortgage 30 Year Term - 6% APR	Monthly Lump Sum Payments
	$0	$5,000
Total Payments	$215,838.19	$189,457.97
Total Interest Paid	$115,838.19	$94,026.09
Total Principal Paid	$100,000.00	$100,000.00
Total Interest Saved		$21,812.10
Mortgage Payoff Time	30 Years	26.33 Years