--- In [email protected], "suziezuzie" <[EMAIL PROTECTED]> wrote: > > --- In [email protected], new.morning <no_reply@> > wrote: > > > > --- In [email protected], "suziezuzie" <msilver1951@> > > wrote: > > > > > > > > > What these banks do is charge you all the interest up front. > > > > The banks are not front-loading interest. They are charging interest > > on a "pay-as-you-go" basis. That is, they are charging interest on > the > > outstanding principal. No more, no less. As the principal declines, > so > > does the interest on the remaining principal. > > This is true for short term loans only, not 30 year fixed loans.
Not true. The principle is the same. If you have a teaser low interest loan for the first 5 years, or an ARM, or other more complex loan, then its a slightly different structure -- but the principle is the same -- you pay interest on the outstanding principal. You and the author of the link you gave appear to feel that because initial interest payments are more than principal in the first years of the mortgage, that it is "front loaded". Thats an odd definition of front-loaded. Front loaded traditionally means paying MORE interst than is warranted by what is due on remaining principal. Create a payment and interest stream in Excel or Google SS and you will understand whats going on. I have put an excel ss that mimics your case in the FFL files "Service". Actual interest does not sink to the level of principal until year 21. But that is NOT front loading in the traditional finance sense of the word. > > It appears on my statements that the interest IS frontloaded for > example on a loan of $117,000, for two years now, I've paid $20,000 > in iterest and $3000 in principle. The $900 a month I'm paying is > paying off mainly interest first for the first ten years > (approximately). If I were to increase the principle amount of > payback, they would recalculate the interest and it's true that a > higher percentage of the principle would be coveredt. Mark > > http://www.refinance-refinance.net/2006/04/10/mortgages-for-dummies- > mortgage-term-length.html > > > > For example, in the last boom phase of the real estate market, > > "interest only" loans were prevalent --- at least they > were "interest > > only" for the first 5 years or so of the loan. Thus, for a $100,000 > > principal, $6,000 of interst would be paid (assuming annual payments > > -- a simplification for this example.) For five years, no principal > is > > paid off. > > > > On the other had, a 30 year loan requires / allows the payment of > the > > same interest as above, plus some repyament of principal, structured > > so that the full principal is paid off in 30 years. Again following > > the same principle, that interest is charged on the outstanding > > principal in each payment period. > > > > A 15 year loan pays back more principal each payment period. A 5 > year > > loan even more so. > > > > If you want to pay less interest, simply pre-pay down your principal > > each month. If the mortgage payment is $1000, pay that, plus $500/ > > month principal paydown. You will end up shortening the term of the > > loan -- and end up paying less interest. > > >
