| -> | | | | makes it very difficult to build equity in your home |
| Amortization describes the process of dividing | | | | during the early years of your mortgage. |
| mortgage payments over the term of the loan | | | | Every month that you make a payment the amount of |
| between interest paid and principal repayment. | | | | interest you pay is based on the outstanding balance |
| Mortgages loans are front loaded with interest; this | | | | of the mortgage. In this case, the second payment you |
| means at the beginning of the loan you are paying | | | | make the interest will be based on a balance of |
| more in interest than you are repaying on the principal | | | | $99,910. By using an amortization table you will be able |
| balance. This works in your favor at the end of the | | | | to see how the interest amount you pay decreases |
| mortgage because the interest is calculated on the | | | | as the principal balance is paid down. |
| remaining balance. The smaller your outstanding | | | | By the time you reach the halfway point in repayment |
| balance, the less you will pay in interest. | | | | of the mortgage, you will have made 256 monthly |
| For example, if you were to borrow $100,000 for your | | | | payments over the course of 21 years. The remaining |
| home at 6.5% interest over 30 years your monthly | | | | balance will be paid back in 9 years. The fact that you |
| payment would be $630. When you make your first | | | | will not pay back half of a 30 year mortgage for the |
| payment $540 of the $630 will be paid to interest. This | | | | first 21 years is a strong case for making bi-weekly |
| means you will only pay $90 towards the principal | | | | mortgage payments. |
| balance of your loan. This front loading of interest | | | | |