Paying Off Your Mortgage FAST!


— Slide 1: Review of Mortgage Loan Components —

There are three parts to a mortgage:

  1. principal:
    the original amount that you borrow with an obligation to repay the amount over a set term.

  2. interest:
    a percentage amount that you agree to pay the lender for use of the principal amount until the full amount is repaid.

  3. term:
    the length of time (generally in months) to repay the principle.

    Example: the lender gives a home buyer $100,000 (principal) to buy a home. The buyer agrees to pay 6% annually (interest) on the loan balance until the entire amount has been repaid.

    If the buyer pays interest-only payments, s/he will pay the lender $6,000 each year for use of the loan:

    (calculated as: $100,000 X 6% = $6,000)

However, the buyer needs to pay back the loan over a period of time (term),

so s/he will pay an additional amount over the required interest payment to reduce the principal amount to zero.

There is a mathematical formula that constructs an amortization schedule that shows what monthly dollar amount the buyer must pay in order to reduce the loan to zero over a certain period of time; i.e., 30 years.

All amortization schedules use a term: the most common term for home mortgages is 30 years (360 months). But other mortgage terms may include 15, 20 and 25 years.

There are even 40- and 50-year mortgage terms in some markets.


 

Download this spreadsheet to run your own numbers.

— FREE MS Excel Worksheet

Scroll down the spreadsheet to see the accumulated interest paid over the life of your loan.

 

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about mortgages (Part 1)