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Home Loan - Where Your Payments Go

By
Managing Real Estate Broker with 206 909-7536 AdrianWillanger-broker.com 17900

 

If you have a loan on your Lake Forest Park home you will be paying interest monthly on the whole balance that is still owing. At the beginning almost all of your payment will be put towards paying off the interest. As the years go by, however, less money is put towards the interest and more gets put towards the principal. 

If you have a 30 year mortgage to pay off, for example, at a 7% rate, you will still be paying more towards the interest than the principal, even when you are halfway through the payments. When you are fifteen years into the mortgage only about 75% of your payment will apply to the interest. At this point only 1/4 of your payment is building up the equity in your Lake Forest Park home. 

You will not see more than half of your payments being put towards the principal until you are in your 22nd year. That is when the equity continues to build at a rapid pace and everything gains momentum. 

With this 30 year loan, you do not own half of the home until the 22nd year or so. There are a couple of ways to reduce this time, however, if you can afford them. 

Extra Payments

As long as there is no clause on your mortgage for prepayment penalties, you can make extra payments when you have extra funds at hand. This will speed up the process so that your payments go towards building up equity in your home faster. 

15 year mortgage 

You will save an incredible amount of money on your Lake Forest Park home loan by taking out a fifteen year loan at the beginning. If there is any way to afford it, this is your best option in terms of long-term savings. 

As an example, if you have a loan on your Lake Forest Park home loan at 7% for $150,000, a 15 year mortgage will save you about $117,000 dollars over a 30 year loan. This is a staggering amount of savings and makes a 15 year loan well worth your consideration when you are first looking for a mortgage. 

You will have to take another look at your budget to see where you stand before making a final decision about your mortgage. If you can't afford a 15 year Lake Forest Park home loan, you'll still have the option of making extra repayments when possible with a 30 year term. 

For real estate questions in the Lake Forest Park and Seattle area contact Adrian Willanger 206 909-7536

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Adrian specializes in green home marketing utilizing traditional and social media marketing to create the widest exposure of your property.

Pat Champion
John Roberts Realty - Eustis, FL
Call the "CHAMPION" for all your real estate needs

Very informative post it is good to know where our payments go I always suggest to my buyer's if they can and it's permissible to pay extra payments to get the loan paid off early. 

Apr 03, 2011 06:51 AM
Adrian Willanger
206 909-7536 AdrianWillanger-broker.com - Seattle, WA
Profit from my two decades of experience

Greetings Pat~Thanks for taking the time to stop read and comment on my post. Have a good week.

Apr 03, 2011 07:34 AM