--- In [email protected], new.morning <[EMAIL PROTECTED]> wrote: > > Here is the Excel file > > http://groups.yahoo.com/group/FairfieldLife/files/Local%20Services/ > > --- In [email protected], new.morning <no_reply@> wrote: > > > > --- In [email protected], "suziezuzie" <msilver1951@> > > 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. > >
I never heard the term front loaded before so I thought you were using it to mean what we're talking about, that the interest on a 30 year fixed home loan is calculated by the banks on purpose to be paid at the beginning of the loan as you've shown on your excel sheet. This is an arbitrary arrangement by the banks. The interest could have been arranged so the principle so that both could be paid together over the 30 years by simply adding the principle and interest together and dividing the amount over 30 years. The reason the banks do this, is to collect the interest first. That way, if the borrower should decide to pay off the entire loan early, let's say after 10 years, they will end up paying almost the entire amount of principle. Look at your excel sheet and you'll see that after 10 years, the accumulative interest is over $60,000 and the accumulative principle is only $17,000. The pay off would be around $100,000. This is what I'm talking about, banks purposely collecting almost all of the interest up front. In my opinion, this is a scam. Mark
