Do you just pay the same amount for say a 25 year term give or take interest rates?
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No, it can change. Usually you pay the same amount, but from this amount you pay more interest in the beginning and less when you’re almost done. When the interest rate goes higher, your bank might make you pay more.
If your mortgage has a fixed interest rate, then the amount of money you pay every month can be the exact same for the entire term of the mortgage (unless you want to pay it off faster). If you have an adjustable rate mortgage, then your bank can change your payment based on what the current interest rates are.
At the beginning, when your principle is the biggest (you’ve borrowed a ton of money), the interest accumulation is huge. If you don’t pay the interest, that gets added to the loan principle, so most of each payment goes to paying off the interest, and only a little goes towards paying off the principle. However, since you **are** paying bits of the principle off, that means the interest accumulation each month is less than the interest accumulating from the previous month. That means more of your fixed payment goes towards paying off the principle, which takes another bit off of the next month’s interest accumulation, and so on.
There are two kinds of mortgages: fixed and variable. That’s whether or not the interest rate is… fixed or variable.
With a fixed rate, you pay the same amount every month for the term of the mortgage. If you choose to pay more than that amount, you’ll pay it off quicker. As long as the bank gets their money every month, they don’t really care.
With a variable rate, you pay according to a formula which includes the interest rate. They’re more complicated, but you’re still allowed to make extra payments to pay it off quicker.
Ultimately a mortgage is a contract between the bank and the individual. It can be as complicated or as simple as the two parties want it to be. The precise terms are negotiable.
If you go to a mortgage calculator and look at the amortization table, you can see what is described above–, interest portion reducing as principle increases
There are multiple factors that play into it. If a mortgage has a variable rate, then as the rate changes, let say goes up, the bank will probably want you to pay more per month to account for that extra interest so you don’t take longer to pay off the loan. Also, if you have an escrow as part of your mortgage plan to help cover your property taxes, the mortgage payment will change as those taxes change. That’s usually the primary reason someone with a fixed rate mortgage has their monthly payment change.
Generally, with a fixed rate, your payments are level, but in the beginning most of the money goes towards interest. This gradually shifts to more of the payment going to principle with every payment. At the end, at the actual payoff, you will owe a little bit more interest depending on payment timing. The best strategy at this point is to pay a little more than they ask for, and let them refund you the difference. Otherwise you get into this frustrating loop where they can’t close out the loan until you pay lets say two more days worth of interest, then by the time you get this money to them, you owe a little more and so on.
Yes, mortgage payments remain the same for the duration of the loan. At least for the loan part (interest and principal)… the amount held in escrow for homeowners insurance and property taxes go up over time as those costs do.
Based on the loan amount and interest rate, the total of payments is calculated and divided by the 360 months of a 30 year mortgage. Early payments are mostly interest and over time the ratio of interest to principal shift.
So over time, as your income goes up due to inflation and career growth the affordability of your mortgage should get easier and easier.
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