SL 7: Paying Your Mortgage Upfront
viewing another accelerate mortgage payment option
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.
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|
|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:
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