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This calculator's purpose is to illustrate how your mortgage payment
gets distributed. (How much goes to interest, equity, etc). Banks print amortization
schedules which don't have "running totals". Instead, amounts are printed for each month
and so a 15 year amortization schedule has 180 lines; a 30 year schedule has 360!
With a document like that, it is hard to see the "big picture".
However, if you still want a monthly display, please go to:
Monthly Display
How Mortgages Work
30 Year Mortgage
$150,000 ; 30 years ; interest rate of 7.625%.
The monthly payment is $1,061.69.
The column titled "you own", is the plain English term for "equity".
After 15 years (the halfway point) your equity is $36,344.43, about 24% of the money you borrowed.
As you can see, equity increases very slowly in the first 2/3 of the time of this loan.
After the final payment, you have spent $382,208.62 to buy the $150,000 house.
Compare this to the 40 year mortgage example below.
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40 Year Mortgage
$150,000 ; 40 years ; interest rate of 7.625%.
The monthly payment is $1,000.99.
This loan is 10 years longer yet the monthly payment decreases by only $60.70.
Now look at the 20 year line - halfway through the loan - you'd think you'd own half of your
house ? No - far from it actually!
In those 20 years you have paid $240,237.71 (the interest portion of this is a whopping
$213,322.36) and so "you actually own" (OR your equity) is $26,915.35.
After all that time and money you own roughly 18% of your house !
Also, when the final payment is made, you have spent $480,475.43 to buy a $150,000
house!
Although 40 year mortgages aren't too common, you can see that they should be avoided because the
30 year mortgage has all the advantages.
50 Year Mortgage
$150,000 ; 50 years ; interest rate of 7.625%.
The monthly payment is $ 974.93.
Although this loan is 10 years longer than the 40 year mortgage, the monthly payment
has decreased by a mere $26.06.
After 25 years (the halfway point), the equity is $19,512.55 which is 13% of the mortgage. This
loan builds up equity very slowly doesn't it?
In those 25 years you have spent $292,477.58 in mortgage payments.
Even more astounding is at the end of the 50 years, you have spent $584,955.16 to buy a $150,000
house. You have spent almost four times its value to own it after 50 years. Had you been able to secure a
30 year mortgage, the monthly payment would only be $86.76 a month more - just a little more than one
thousand a year and you would own your house twenty years sooner.
Fifty year loans were unheard of until quite recently. As stated previously, even 40 year loans were
uncommon. Sometimes you may not have a choice as to the length of a loan and the bank makes that
"decision" for you. Still, as can be seen from the above examples, it is always the wisest choice to select
the shortest period of time and the largest monthly payment you can reasonably afford. For
example, if you wanted to take out a $150,000 7.625% 2 year mortgage, your monthly payment would be
6,758.47 which most of us could not afford.
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