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65

I see your confusion: You're looking at the interest as if it applied to the whole loan balance. That's not what actually happens--the interest rate remains the same but as you pay down the loan the amount that you are paying interest on drops. That's what that chart really is showing--as the amount owed drops the interest drops and the amount that goes ...


47

Your first sentence is written in a way that highlights a common misconception about how term loans work: Most mortgages use an amortization schedule that have you pay more interest than principal at the beginning Note the banks are not doing anything mischievous or playing with numbers in such a way to cause you to pay more interest up front than you ...


22

The typical home mortgage is amortized to give you a consistent payment amount through the duration of the loan. What you'll see is that each month a greater portion of your payment goes to principal rather than interest. When looking at loan calculators look for ones that show the full amortization schedule to get a good picture of how the variables ...


17

It is not so much that you are miscalculating, but that what you are calculating is not meaningful in the context you're trying to use it ("the annual rate of the loan"). You are essentially trying to compare apples with oranges. You have taken the total interest paid (over one or 20 years), expressed this as a fraction of the original loan amount, and then ...


10

A few things come to mind: Gifts above $15,000 (raised from $14,000 in 2018) are not necessarily taxable. Gifted amounts over the $15,000 annual exclusion are applied toward the lifetime maximum of $11.4 Million. Only after that maximum has been reached do gifts become taxable. Also, the tax is applied to the giver, not the receiver. Be very careful about ...


7

Not typically. The payment amount on a mortgage is typically fixed until the principal balance is paid off. If you make extra payments after origination, that payment reduces the amount of principal remaining, which reduces the amount of interest that is charged, which means that more of the fixed payment goes to principal, paying off the loan sooner. You ...


6

Generally no. Mortgage loans are typically amortized up front, with a fixed payment every month. The proportion of that payment that applies to interest vs principal changes every month (more interest at first, when there is more outstanding balance) but the payment stays the same every month. If you pay "extra" and it is applied to principal, the lender ...


6

Initially, lets say I pay around 1000 USD (200 toward my principal and 800 towards my interest).(May not be accurate numbers) Now the balance left on my mortgage is 159,000. This is incorrect. Your balance is now $160,000 - $200 = $159,800. I realized through internet that the additional payments would only cut the down the 30yr term. That is, ...


5

As long as there is no prepayment penalty, and there are no tricks like counting the effect on the rate due to “points” being charged, the rate is the rate. 4.5% is the same through the day you pay it off, no matter the time. I don’t know how you are getting the other numbers. Each month, the interest is calculated by multiplying the remaining balance by ...


4

I think in most situations, the seller of the home will be unconcerned about the source of the money and how much is a loan, as the money will pass through a bank anyway. You are incorrect in this assumption. The quality of the buyer is very important to the seller. You, as a 50% down buyer, look far more attractive as a buyer that is putting 10% or less ...


3

Generally it depends. At least in europe bank offer 2 types of credits and mortgages: Fixed payment Fixed return on capital. In the first, the absolute payment is fixed and over time more and more of the capital goes towards paying back the principal. In the second, the rturn on principal is fixed and over time the monthyl payment (which includes return ...


2

This answer applies to the US. This may be different in other countries. Like the other answers have mentioned, over a typical fixed mortgage, the payment amount stays the same for the life of the loan. In a normal fixed rate mortgage, if you make a large payment towards your mortgage, you are shortening the amount of time you will make payments and this ...


2

This may depend on where you are and what type of mortgage you have, because most of the answers so far contract my direct experience! I have a pretty standard repayment mortgage with a building society in the UK.  When I made a big overpayment, I was told that they'd automatically reduce my monthly payments to keep the term the same; but I could (and did) ...


1

This needs to be negotiated with the lender. Consider this: you get one 10000 USD loan with 200 USD monthly payment and another 40000 USD loan with 800 USD monthly payment with equal lengths. Then if you pay 10000 USD for the 10000 USD loan, obviously it will vanish so your monthly payments do really get reduced by 200 USD. However, if you have only one ...


1

Unless you refinance, making a large lump sum pre-payment won't alter the monthly payment amount. The effect it will have is to shorten the term, so the mortgage gets paid off sooner. Because the pre-payment goes directly to principal, the interest portion of each payment will go down (less principal to attract interest each month), so the principal portion ...


1

If the terms of the mortgage were that you didn't have to make any payments for the duration of the loan, except for a balloon payment of the interest plus principle ($165,000 + $116,617.93 = $281,717.93) after 20 years, then taking ($281,717.93/$165,000)^(1/20) to calculate the effective interest rate would be a valid calculation. But you don't get to put ...


1

This is very confusing, however I think I understand it. If the buyer pays extra payments which accelerates the LTV to 80% or below before the scheduled date on the amortization chart, the lender can require an appraisal of the property to confirm property current market value. Unfortunately, an apprasal could cost the buyer $400 or more and the buyer must ...


1

If the interest rates are identical, it does not matter, assuming the mortgages have identical tax treatment (if you get a tax break on one but not the other, the situation changes). And: Once the smaller loan is paid off, you must apply its payments to the other. No matter where you put an extra 1000USD, it will always save you 38USD per year for each year ...


1

Provided the interest rates are similars, and you still want to make overpayments on mortgages, then the best option is to put all the capital (available for overpayment) in the mortgage which has the longest term left. In most cases this is going to be the mortgage with the most principal left, as in your case it is the 30 years mortgage. The reason for ...


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