How To Manage Your Mortgage Refinance And Payback Period

When a lender gives a loan to you whether its a bank or any other financing institution then they would charge you a fixed rate which would comprise of the principle amount + the interest mortgage. This would be taken into account to calculate the monthly mortgage payment through the principles of amortization.

principles of amortization

Principles of Amortization

When you get a loan for instance for homeowners then at initial stages the mortgage interest payments might be higher. This means the amount which you would be paying back would be covering the interest rather the principle amount. This means that your principle amount would be left standing there only and after a decade or two when you look at your statement you would feel as if this amount hasn’t reduced a single bit. This only reason for this is that the process of amortization is bank friendly rather than user friendly. However, amortization can provide borrowers advantage as well in the sense that when you start paying your mortgage installment initially, you would be liable for tax deduction this means that down the later your tax benefits would decrease as time passes by.

However with some extra payment, the life of the mortgage could be reduced. An example of this could be that if we take a $300,000 loan at the mortgage rate of 5% and look at it after a period of 10 years then it would show the following result:

1. Balance after 15 years of mortgage would be reduced by 58%

2. Balance after 20 years of mortgage would be reduced by 38%

3. Balance after 30 years of mortgage would be reduced by 19%.

And if we compare the same figures after 15years of mortgage payment then the first step would that the full mortgage has been paid, the second would show after 20 years a decrease of 65% and after a period of 30years it would show a decrease of 32%. This is the only reason why amortization schedules are more favorable towards banks rather than homeowners.

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