All home loans are amortized. The total payment is actually two
payments, one towards interest and one towards principal. There could also be a
payment towards taxes and home insurance which is separate as well. Every time
you make a payment you reduce the principal, thus reducing the interest owed.
Unfortunately, the principal payment starts off very small.
Example : Loan Amount : $100,000 at 7% interest rate. Payment is $665
monthly with $81 going towards principal and the rest towards interest. The
principal amount paid will increase yearly, but not very fast. Making principal
payments on top of your normal mortgage can accelerate this. Making one extra
payment per year can cut approximately 7 years off a 30 year mortgage. If you refinance
your home, the amortization starts all over.
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As you can see you have
only paid off $1842 of the original mortgage loan. That is why extra loan
payments can make all the difference.
If you made an extra mortgage payment in the first month of your loan of $1842
towards principal, you would advance your amortization to month 13, effectively
cutting out 1 year of payments and saving $8949 in interest.
MAKE EXTRA PAYMENTS, FULL OR PARTIAL, AS MUCH AS YOU CAN
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