Posted on: 14th Feb, 2007 02:58 pm
I met with a loan officer to inquiry about a 30yr fixed rate loan. I showed him a typical amortization schedule I generated from the internet. He looked at it and commented the actual payment schedule I get from lender is slightly different.
While the monthly payment amount is the same, the actual interest paid each month for the first 20 years is higher because lender wants you to pay off the interest earlier. Is that true ?
While the monthly payment amount is the same, the actual interest paid each month for the first 20 years is higher because lender wants you to pay off the interest earlier. Is that true ?
Yes in the initial period of the loan the majority share of the total payment is towards the interest and the rest is for the pay back of the principal. In later years it reverses to being the majority of the total payment going towards the principal instead of the interest amount.
Let me tell why it is so. The interest is calculated on the loan amount and the lender does not want the principal to get reduced in the initial years. It will mean reduction in the interest amount he receives.
"He does not want the interest to be paid back earlier" rather he does not want reduction in the amount of interest in the early years.
Let me tell why it is so. The interest is calculated on the loan amount and the lender does not want the principal to get reduced in the initial years. It will mean reduction in the interest amount he receives.
"He does not want the interest to be paid back earlier" rather he does not want reduction in the amount of interest in the early years.
For example take a $400K loan 30 years fixed rate at 6%, the monthly payment is about $2400. I believe for the first year, the interest paid is about $2000 every month, the remaining goes to principal.
If I pay extra $500 each month in the first year, does the $500 go to principal automatically and reduces interest paid for the following month?
In general, how to lower overall interest paid for a traditional 30 yr fixed rate loan? My current job allows me to pay $3000 every month but instead of going for 15 years fixed rate, I like to stick with 30 yr to reduce monthly payment .....just in case job situation changes.
If I pay extra $500 each month in the first year, does the $500 go to principal automatically and reduces interest paid for the following month?
In general, how to lower overall interest paid for a traditional 30 yr fixed rate loan? My current job allows me to pay $3000 every month but instead of going for 15 years fixed rate, I like to stick with 30 yr to reduce monthly payment .....just in case job situation changes.
"If I pay extra $500 each month in the first year, does the $500 go to principal automatically and reduces interest paid for the following month?"
You need to inform the lender that you want the extra payments you would make to be used in reducing the principal balance.
With the figures you have provided, in the first month your interest payment is $2000 + principal $398.21 + extra payment $500 = total payment $2898.21
Next month your interest payment will be $1995.51 + principal $402.70 + extra payment $500 = $2898.21
You can see that in the second month the interest payment gets reduced to $1995.51 from what it was in the first month ($2000). As the loan balance after the principal payment of 898.21 (398.21+500) in the 1st month becomes $3,99,101.79 ($400000-$898.21) & interest for the second month is calculated on this loan balance, $399101.79 x 6 (rate) = $2394610.74/100 = $23946.10/12 (months) = $1995.51
I hope it does not look too complicated. For this calculation I have taken help of a online calculator listed on a website.
Loan Advisor
You need to inform the lender that you want the extra payments you would make to be used in reducing the principal balance.
With the figures you have provided, in the first month your interest payment is $2000 + principal $398.21 + extra payment $500 = total payment $2898.21
Next month your interest payment will be $1995.51 + principal $402.70 + extra payment $500 = $2898.21
You can see that in the second month the interest payment gets reduced to $1995.51 from what it was in the first month ($2000). As the loan balance after the principal payment of 898.21 (398.21+500) in the 1st month becomes $3,99,101.79 ($400000-$898.21) & interest for the second month is calculated on this loan balance, $399101.79 x 6 (rate) = $2394610.74/100 = $23946.10/12 (months) = $1995.51
I hope it does not look too complicated. For this calculation I have taken help of a online calculator listed on a website.
Loan Advisor
Thank you la ! Your explanation is clear and it really helps !
"Yes in the initial period of the loan the majority share of the total payment is towards the interest and the rest is for the pay back of the principal"
I just thought of another question last night, is the monthly adjustment that lenders made to the amortization schedule published somewhere on the internet that I can look at? If each lender does it differently, then of course I will not be able to find it anywhere else.
If I understand the way it works, the lender will calculate the total interest paid throughout the term of the loan (eg. 30 years fixed at 6%). Say in this case, the total interest is about $460K for a $400K loan. Then, the adjustment is made to montly payment so that the interest $460K will be paid off in about 20 years, is my assumption correct?
max
I just thought of another question last night, is the monthly adjustment that lenders made to the amortization schedule published somewhere on the internet that I can look at? If each lender does it differently, then of course I will not be able to find it anywhere else.
If I understand the way it works, the lender will calculate the total interest paid throughout the term of the loan (eg. 30 years fixed at 6%). Say in this case, the total interest is about $460K for a $400K loan. Then, the adjustment is made to montly payment so that the interest $460K will be paid off in about 20 years, is my assumption correct?
max
Hello, I have a situlation here and I definitely can use some help here. My ex-husband and I had been divorced for almost three years. We didn't left things in a good term. He owes me a lot child support and he is out of state. I believe he is curently living in Florida and I live in Chicago Cook county. Anyway, When we got divorced and house were awarded to me and It was on my divorce decree, and he did signed the quit claim over to me. However, the notory commissioner's seal expire before I can get it record from the county clerk. So with chance of getting my exhusband tp sign it's almost a mission imppssible. I don't exactly want to deal with him again, nor do I want to get a attorney. so what can I do in this situation??? Please help!
Hi Shy,
Welcome to Mortgage forum.
Your question has been answered on this following page, have a look - http://www.mortgagefit.com/know-how/about6356.html
Colin
Welcome to Mortgage forum.
Your question has been answered on this following page, have a look - http://www.mortgagefit.com/know-how/about6356.html
Colin