63

In other words, math. All the other answers are great, but I thought I might add something concrete to clarify slightly. Consider a counterexample. Suppose I borrow $120000 at 1%/month interest (I know mortgages are usually priced with annual rates, but this will make the math simpler). Further suppose that I want to pay a fixed amount of principal each ...


33

It's not correct. You pay both principal and interest on amortized loans. What happens is that you pay the interest accumulated on that principal during the period. As the time passes - some of the principal is paid off, allowing you to leave more for the principal because the interest becomes less. Thus the longer in the term - the quicker the growth of the ...


17

Amortizing loans pay off some of the value of the loan (otherwise known as principal) with each payment, whereas non-amortizing loans only pay the interest, so the full value of the loan is still owed at the end of the loan. This means that with an amortizing loan you progressively pay off the loan value bit by bit as time goes on.


16

Assume a month to month mortgage. This is a simplification, but it will illustrate the point. Borrow $100,000 at .5% a month. Make a payment of $1000 each month. So, for the first month, it will cost you $500 in interest to borrow the entire balance for one month. When you make your payment, $500 goes to interest, and 500 goes to principal. Your new ...


10

Banks don't make you pay different amount of principal at different stages of the mortgage. It's a consequence of how much principal is left. The way it works is that you always pay off interest first, and then any excess goes to pay off the principal. However early in the mortgage there is more interest, and so less of the payments go toward principal. ...


8

Can you reduce your interest rate? Talk to the lender. Maybe. Probably not. The rate reflects their perception of how much of a risk they're taking with the loan. But if all you're borrowing is $2000, the savings that you might get out of any adjustment to the rate is not going to be all that significant. Sure, it would be nice, but it's not going to be ...


8

The bank is following the calculation method of daily reducing balance. This is usually good for customers as you are paying exactly for the number of days you are using the money. The calculations work out as: Pyt Date Opening EMI Int Princ Closing 8/1/2011 24306.00 757.62 209.58 548.04 23757.96 -- Interest for 42 days 9/1/2011 ...


7

Their examples adequately demonstrate the difference between partially amortized and fully amortized loans, especially since it's in the context of commercial lending, where 30-year terms are uncommon. The point is, if the amortization period is longer than the term then you have a partially amortized loan (balloon payment due at end), and if the ...


7

It will most likely be $2,380. This will depend on the specifics of your mortgage contract, but the monthly payment generally won't automatically change in this situation. If you're paying off such a substantial portion of the outstanding balance, you may want to look at refinancing the loan entirely to get a lower interest rate and/or lower monthly ...


5

Talk to your bank first but shop around a bit as well with other reputable lenders in your area. Another option, if you're willing to put down ~84% of the purchase price would be to talk to several dealerships BEFORE you set foot on a single lot. Tell them that you are interested in buying a Versa and that you are willing to pay cash but you are not ...


5

If you keep the monthly payment the same, and the interest is lower; then you will be by definition overpaying the new loan therefore it will be paid off sooner. Based on some quick calculations it will be paid off approximately 5 years sooner. One advantage to the new loan is that you will have flexibility, you can drop the payment to the lower level for ...


5

Each month, the lender adds the month's interest to the outstanding balance and then subtracts the payment received. In this case, the lender adds an extra charge, still proportional to the outstanding balance, before crediting the payment. So, the effect of the insurance is the equivalent of increasing the monthly rate by 0.038 percentage point. So, if ...


5

Here is a simple example based on Joe's discussion in comments. Suppose that for a given month you owe $50 of interest. Let's say you make a $100 payment. If all of this money goes to the principal, you reduce the principal by $100. But you did not pay the $50 interest, so it gets added to the principal. This means you reduced the principal by $100 but ...


5

I calculated 14098.64 and 14098.74. Here are the methods. First, what I would say is more mathematically correct. For a loan with equal payment periods we have the standard formula below. pv = present value of principal c = periodic repayment amount r = periodic interest rate n = number of periods With an extended first period the formula is changed ...


5

Outside of any payment plan that might be set up, credit cards don't amortize - they charge interest on the unpaid balance at the end of the month, without regard for previous months, and then add that to the balance. Any amount you pay the credit card company is applied to that balance -- there's no differentiation between principal and interest, because ...


5

Credit cards don’t have fixed monthly payments like a mortgage or other traditional loan. As a result, there isn’t really a distinction between “principal-only” payments vs. future pre-payment as there is with a mortgage. When your credit card statement is generated, the bank adds any finance charges for the month to your balance. This finance charge is ...


5

The underlying calculations are simple, and you can easily replicate them. Let's look at the first few months. Month 1: Balance = Initial balance = 300,000 Interest = Balance * Rate = 300,000 * (0.04 / 12) = 1,000 Principal = Minimal Payment + Additional payment - Interest = 1,432.25 + 100 - 1,000 = 532.25 Month 2: Balance = Month 1 balance - Month 1 ...


5

Your remaining principal balance will be $38,528.86. And you will have paid $8,238.03 in interest. You can calculate this (or any other amortization) with a fairly basic spreadsheet. Put your principle amount in the first column. In the next column, multiply it by the interest rate for that month (APR divided by 12). In the next column, enter the amount ...


5

Yes, about 5% With monthly rate r and principal s = 511200 payments d = 9628 no. months n = 5*12 Equating net present values Solving for r s = (d - d (1 + r)^-n)/r ∴ r = 0.00409911 Nominal interest compounded monthly is 12*r = 4.91893 % Effective annual interest is (1 + r)^12 - 1 = 5.03136 % The former is APR in the US and the latter is APR in ...


4

I would imagine that the dollar would be worth much less at the end of a 30 year loan than at the beginning Exactly right. That's why the current rates are so attractive - you're basically getting the money for free. The 3-4% rate for the loan is similar to the inflation rate. The amortization schedule of a fixed-rate loan doesn't take inflation into ...


4

Banks make you pay accrued interest on the current outstanding balance of the loan each month. They want their cost of capital; that's why they gave you the loan in the first place. On top of this, you will want to pay some additional money to reduce the principal, otherwise you're paying interest forever (this is basically what large companies do by issuing ...


4

With that credit rating you should have no trouble getting a rate in that range. I have a similar credit score and my credit union gave me a car loan at 1.59%. No haggling required. In regards to your question, I think you have it backwards. They are more likely to give you a good rate on a high balance than a low one. Think about it from the bank's ...


4

The way the loan is structured, "duration to payoff" is the basic factor that determines the total loan payment per month, along with a general desire to have a stable mortgage payment (ie, the same payment every month). This drives the small amount going to principal (not the large amount going to interest). At any given time, for a particular month, you ...


4

For an amortized loan, you can calculate the monthly payment for a loan. For example, 30 year loan at 7% for $100,000 would have a monthly payment of $665.30. For the duration of your loan, your payment will be $655.30 no matter how much you prepay. For each payment, you calculate interest owed (7% / 12 * Loan Balance). For the first month, you get 0.07/...


4

One way to perhaps reduce the confusion is to realize that there is no distinction between principal and interest. Say you borrow $100,000 and agree to pay it off with equal monthly payments over 20 years, while paying interest at 12% a year, compounded monthly (or 1% a month). So you walk out with $100,000, and the mortgage company sets up a leger page ...


4

It may have been the standard practice for a long time, and indeed it still is the common practice for my credit union to apply all excess payment directly to the principal. At the risk of sounding a little cynical, I will suggest that there is a profit motive in the move to not applying excess payments to principal unless directly instructed to do so. ...


4

The interest compounds monthly but accrues daily. I'm guessing (since the math results in the same answer) that the accrual method is ACT/365, meaning that the amount of accrued interest is calculated based on the actual number of days divided by 365. With a $350,000 principal balance, the interest that accrues in 14 days (from the 1st to the 15th) is $...


4

I would just seek out a new mortgage in your name. Whether you can get one at the same rate depends on your credit history, but with a LTV of less than 50% (30K/70K) there should be no problem getting a mortgage. You might have to explain the fact that you've been making the payments since that won't be on your credit history. the lender won't even talk ...


4

The easiest way to get a handle on this will be in a spreadsheet. You can easily build an amortization table in Excel or copy one from an online amortization calculator. Then add your property value estimate next to the amortization schedule and compare the ending balance from each month with the estimated property value to get estimated equity for each ...


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