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Charlie M | Mortgage Statement Question? |
I recently bought a townhome 6 months ago, 6.75% fix 30yr. I was reviewing my mortgage bill and noticed it shows im paying $650 or so per month for "Interest/Principle" and shows a tab just for "Principle" show im paying $87 per month or so for that, under that it shows my principle balance. Then shows "Escrow" and shows $160 or so per month for that.
My question is, shouldn't all the money i pay per month go toward the principle of the home? Am i just paying $650 per month just on interest costs? Im confused, i need some help with this. |
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robert S
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Let suppose you borrowed $100,000 at 6.75% for 30 years (360 monthly payments). The installment loan, just like your car payments is designed to have a level payment and pay down the loan to zero balance at the end. So for the first month, you pay a lot of interest and you take down a little bit of your mortgage balance. Next month, your payment is still the same but your interest is smaller because you paid back a few dollars from the $100,000 you borrowed. Now the same payment can afford you to pay down another few dollars more on your loan balance. By the last few years, you pay very little on interest and a lot more on equity even the payment never changes. At the last payment, the same amount covers almost all principle and you loan balance becomes zero. Now you own the house free and clear after 360 payments.
Now for the escrow account...you pay your real estate taxes and insurance on an annual basis. That amount can be very large depending on where you live. A lot of people especially if they are going from pay check to pay check, forget to make provision for these expenditure. So they get caught short when these expenses are due. Failure to pay real estate taxes can result in a foreclosure. A house without home owner's insurance will be risky to the lender as well..
To help their borrowers and to protect themselves, the lenders collect a small amount monthly from their borrowers and put it in an escrow account. When these bills become due, the banks pay them for their borrowers out of the money they collected.. Consider your escrow payment as a savings account to take care of these expeniture that comes with home ownership. |
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TheTruthAboutMortgage.com
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Looks like you are paying PITI payments each month. PITI stands for Principal, Interest, Taxes, and Insurance.
Escrow is another way of saying taxes and insurance.
You definitely aren't paying Principal only, that would mean you'd have an interest rate of 0%. There are interest-only loans, but those do not pay off any principal.
The $87 a month your currently paying goes towards the principal of your home. The bulk of you payment is interest right now because that's how mortgages are amortized. You always pay a large portion of interest the first 15 years of your mortgage, and then mainly principal in the final 15 years. That's why it's not wise to constantly refinance your home as you'll end up paying more and more interest.
This is typical. You can pay off more principal each month if you'd like, but there's no way to pay just principal while avoiding interest charges.
I recommend that you call the loan servicing department for which your loan was originated to resolve your questions. A rep. can tell you exactly what each figure pays, and how it will change over time. |
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ann
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It depends on how much you put down. With a traditional loan such as yours, most of the money goes towards interest at the top of the loan. As you pay it off years from now, more and more goes to pay off principal. Look in your papers for an amortization table, or google those words. Then enter your loan amount and months left to pay, and you will be able to see a table of your payments and principle vs. interest ratio. |
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Amanda H
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Ha. Dont you WISH that all your money went towards principal?
When you first make a purchase, a huge percentage of your payment goes ONLY towards interst, and a small amount to principal. Principal is what pays down what you owe. Interest is to keep your loan 'current'.
In another year, instead of $87 going towards principal each month, it might be $89. A year after that, its $92...etc (just making up numbers)...as you pay down the loan, more and more gets taken off each month.
"Escrow" goes towards your property taxes, home owners insurance, condo fees, etc. |
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bianca
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if that what your mortgage statement is showing- it is true.
within first 5 years of paying your 30 years mortgage you paying down about 1% of your principal per year and most of your mortgage payment is going to cover interest. if you want to pay more of your principal, you can send larger payment or chose different amortization. this is sad, but we all are in the same boat with 30 years mortgages. that's way we need 30 years to pay them off. |
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Screaming Eagle
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No.
You pay interest, principal, and escrow.
Interest on the loan
Principal goes reduces the loan amt
Escrow for taxes and insurance. |
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asajous
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Welocme to the real world. That's how banks make their money. Interest. In 10yrs you will have paid off 10% off your principal! Best way to beat this is make an extra payment towards your principal atleast 1 month a year, this cuts the note down to 15years, but if you can afford to pay more, do it. Your officer should have told you about the Pay-Option-Arm program which let's you control how much towards interest a month to pay. People are owning homes in less than 10yrs with that program.
Good Luck. |
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Brad A
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Your payments are made up of principal, interest and escrow. The esrow portion is somewhat fixed, though your mort co will adjust up or down periodically based on changes in your property tax rates etc. Your principal plus interest will remain constant, however, the portion that is interest gradually decreases while the portion that is principal gradually increases. You may pay $15,000 in two years and only pay down $1,000 in principal. It's just the way it goes. Towards the end of the loan, you will pay $15,000 and virtually all of it will be principal and virtually none will be interest.
By they way, if you were to make one additional payment a year (make 13 payment instead of 12) that 13th payment would go 100% to pay principal. Similarly, if your mortgage co allows bi-monthly payments, much more will go toward principal faster. |
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Reaper King
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the $87 dollars is all that's being paid on the principle itself. the $160 is for the escrow and the remaining $400 is going to pay the interest. keep in mind the interest will be very high until the balance is brought down. you have a relatively low payment so be happy with that and your rate is quite fair. if you are able to, make two extra FULL payments per year and you can pay off your 30yr fixed in about 17-18 years or so saving you thousands in interest fees. |
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Alterfemego
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This might be best answered by a mortgage broker, but no. During the first years of your loan, you are paying primarily interest and little principle. Escrows are typically taxes and insurance because you invested less than 20% down payment. Hope this helped. |
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Kathleen M
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No your money does not go entirely to principal. The bank makes most of the money on interest over the first half of the loan.
You payment is $650.00 - $87.00 of that is principal - $160.00 is escrows, so this payment $403.00 is going toward principal.
You need to have an amortization schedule printed up - contact your bank and ask for one. This will show you over the course of your 30 year loan, for every payment you make how much goes to principal and how much goes to interest. You'll see that for the most part you will be paying more for interest for at least the first 15 years, maybe even 20 years.
When you get the scheduled, look ahead to the next payment. You will see the amount of principal for the next payment. If you send your regular payment + the next months principal, you will save that months interest, if you can afford to do this. You always have to make a regular payment every month, but you can, if you have the money pay ahead on the principal. It will save you years of interest and knock a lot of time off your loan.
Good Luck |
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