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I don't have to google anything. The rate doesnt slide and you are paying out 4% on a 4% loan no matter the ratio of princ/interest
Not sure how to put it, but Tommy is correct that if you are going to pay extra on a mortgage, you should do it early.
I pay $218 extra per month towards principal. In addition to deducting the balance of my mortgage by an additional $218, every month going forward my mortgage payment will reduce the balance by $1.30 or so more then it previously would have had I not made the additional principal payment the prior month.
There is a defiinite advantage to lowering the balance on a 4% loan when it has a large balance as it will pay dividends for the life of the mortgage. Much less of an advantage to do so when its already mostly paid off.
Not sure if you are just arguing semantics, but if not, go mess around with a mortgage calculator.
If you're going to pay extra on a mortgage, DO IT EARLY.
The amortization schedule causes the highest amount of interest on the first payment then slowly reverses the amount applied to principle. You accrue more equity in the later stages of the loan. The effect is much like a sliding rate on the note. Your APR is merely an average over the term.
If you get this concept you'll make better decisions concerning mortgage payments vs. stock investments.
I agree 100%. The effect is magnified when done early on in the life of the loan.
Not sure how to put it, but Tommy is correct that if you are going to pay extra on a mortgage, you should do it early.
I pay $218 extra per month towards principal. In addition to deducting the balance of my mortgage by an additional $218, every month going forward my mortgage payment will reduce the balance by $1.30 or so more then it previously would have had I not made the additional principal payment the prior month.
There is a defiinite advantage to lowering the balance on a 4% loan when it has a large balance as it will pay dividends for the life of the mortgage. Much less of an advantage to do so when its already mostly paid off.
Not sure if you are just arguing semantics, but if not, go mess around with a mortgage calculator.
There is no sliding rate with the mortgage described, it is always the stated rate. It's not a semantics issue
this is correct . do the math . it is always rate x balance . they are not front loaded
It depends on what you're calculating. If you're calculating total interest paid during the life of the loan, then yeah, accelerating payments earlier in the life of the loan has a much bigger impact on total interest paid than accelerating payments at the end of the loan. Similarly, you have a much bigger impact on the payoff date if you accelerate early. If you double up payments in the first 5 years of a 30 year loan, you probably chop 15 years off the payoff date. If you start doubling payments 20 years into the loan, it only chops 5 years off the payoff date.
We've had this discussion many times. This is all about your risk tolerance. Once you have an adequate emergency fund, people who are risk adverse will pay off their mortgage as quickly as possible rather than invest the money.
Personally, I sleep better at night knowing I have zero debt and a big cash emergency fund. If the bottom dropped out of the economy and I never worked again, I know I'd have a roof over my head and food on the table for the rest of my life. Would I have done better financially pushing every penny into the market in 2010? Sure. But that's out of my personal comfort zone.
The interest is front loaded...because the principle is higher at the beginning.
The person is clearly saying that paying money up front saves you more on interest and it's true. 4% is always 4%, but take a look at an amortization table...
If I pay a $50,000 dollar extra payment in year 1 of a 30 year mortgage, it will save THOUSANDS, if not tens of thousands of interest vs making that same exact $50,000 extra payment in year 25.
That's why the person is saying the extra payments earlier on are more advantageous.
correct but someone else commented it was a sliding scale and an average interest rate and it is not . it is only the quoted rate x the balance each year .
What I said was that it had an EFFECT of a sliding scale. There was never a question about the math involved.
Would you rather knock out a large amount of interest such as payment #1 or a smaller amount such as payment #360?
DO THE MATH! <sneer>
This is what you said
Quote:
The effect is much like a sliding rate on the note. Your APR is merely an average over the term.
The effect is not like a sliding rate on your note. That's simply incorrect.
Everyone knows the less you have financed the less interest you are going to pay overall but that's not what you said above which was incorrect
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