> Mortgage payments are comprised of mostly interest in the beginning. Over time, this percentage slowly diminishes and more of the payment is applied to the actual principle.
A friend of mine used that to turn a 30 year mortgage into a 15 year one. Let's say that the mortgage started in January 1990, and was a $200,000 loan at 8% interest (the rates were higher back then). The monthly payments were $1467.53.
The first month, January 1990, he paid the full amount of the January payment, $134.20 principal plus $1333.33 interest ... plus the principal due for the next month, February, $135.09, for a total of $1602.62.
The next month, Feb. 1990, he paid the full amount of the March payment, plus the principal portion of the April payment, $136.90, for a total of $1604.43.
In March he paid the full May payment plus June's principal. In April he paid the full July payment plus August's principal. And so on.
Now, that did mean his payments increased over time. The original mortgate schedule had him paying $1467.53 every month throughout the loan. The way he did it, his first payment was $1602.62, and his final payment in 2005 was $2925.34. But that was OK, he reasoned at the beginning when he worked out that plan. Over those fifteen years he would be progressing in his career, his salary would increase, and he would be able to afford larger and larger payments.
What did that do to his total payments? Had he gone with the bank's thirty year plan he would have paid a total of $328,310.49 interest. But by doing it his way, he paid a total of $164,487.47 interest. The mortgage did have some clause, a penalty for paying off early, a few thousand dollars -- well, compared to what he had saved, so what?
reply
share
bellington83 (3291)
4 years ago
I didn't live in my house when I first got it. I decorated and furnished it but then I rented out the rooms, for almost 10 years. I stayed living in my folks house before I finally moved in. I saved an absolute fortune.
Mortgage terms and conditions are a lot different in Ireland than they are in the U.S
reply
share
BullSchmidt (3189)
4 years ago
Back at that time real estate values were steadily climbing. When I was in grad school, a girl I knew who was an undergrad was living in this situation. Her family had bought a small house near campus, and had set up four bedrooms with a twin bed, chair, desk, dresser, and closet in each, plus some furniture for the common areas. Nothing expensive, just very basic, low budget furniture, comparable to a college dormitory. She lived there along with three other students, who had signed leases with her dad. The other students changed from year to year but there were always three others living there. Her job was to be the property manager, collecting rents and arranging for whatever household fixes became necessary along the way. Her father paid her some salary for this few hours work per week, and the sum "coincidentally" came to about what a college girl needed for spending money. Since she was working for her dad, he could justify one face to face business conference per year as a tax deductible business expense; i.e., her round trip plane ticket home for Christmas vacation. The other tenants' rents covered the mortgage payments. When she graduated her father sold the home to the family of a younger student at a nice profit, enough to pay for her college education.
reply
share