| When a homebuyer takes out a mortgage, the | | | | The Implication of Time |
| payments made in the early years will be comprised | | | | The real implication, however, is the time value. |
| of up to 85% interest, and just 15% principle. As the | | | | Because mortgage rates start out in favor of the |
| years progress, however, the percentage of principle | | | | lender and slowly move in favor of the borrower, |
| and interest will even out and eventually the payments | | | | holding the mortgage for a longer period of time could |
| will be comprised of more principle than interest. This is | | | | be a wise decision. For example, over 10 years, that |
| known as the mortgage rate curve, and it can have | | | | scenario would look much better. Instead of paying |
| serious implications for homebuyers. | | | | $5.40 to your banker, it would be $3.33 to your banker |
| For example, If you were a new homebuyer with a | | | | (averaged over the 10 years) for each $1 to pay |
| $200,000, 30-year mortgage with an interest rate of | | | | down your debt. If you are able to hold a mortgage for |
| 6%, after diligently making payments for an entire 3 | | | | an extended period of time, it would certainly be in |
| years ($43,200 payments in total) you would still owe | | | | your favor to do so, at least from the mortgage curve |
| $192,000 on your home. This means that during the last | | | | perspective. |
| 3 years, you paid your banker $5.40 for every $1 that | | | | This article cannot cover all of the financial intricacies |
| went to pay back the loan. This can have effects that | | | | of the lending industry, however, if you have further |
| homeowners may not have expected. The common | | | | questions or would like to research this topic in more |
| advice is that if you can afford a home, you should | | | | depth, search for the topics: mortgage amortization |
| buy one. This is great advice...for your lender's sake. | | | | table, mortgage rate curve and others. |