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re: Home Equity question
Posted on 8/2/13 at 12:17 pm to Latebloomer
Posted on 8/2/13 at 12:17 pm to Latebloomer
quote:
The interest is figured each month on the remaining balance. Balance is lower, interest is lower. If he didn't sell it, he would just pay if off sooner.
Yeah, its figured out ahead of time... So him paying more in principal isn't going to affect the interest he pays next month or the month after. His monthly interest amounts are fixed, not variable.
The advantage would be paying the principal off earlier so you save those remaining months of interest payments.
Posted on 8/2/13 at 12:18 pm to Lsut81
quote:
Yeah, its figured out ahead of time... So him paying more in principal isn't going to affect the interest he pays next month or the month after. His monthly interest amounts are fixed, not variable. The advantage would be paying the principal off earlier so you save those remaining months of interest payments.
Correct, which will be greater than interest he can accumulate in a savings account, so the extra money is better applied to the current loan per this scenario
Posted on 8/2/13 at 12:29 pm to Lsut81
quote:
Yeah, its figured out ahead of time... So him paying more in principal isn't going to affect the interest he pays next month or the month after. His monthly interest amounts are fixed, not variable.
The amortization of the loan that is calculated at its origination becomes inaccurate if payments are made in any other pattern than the one that is used to prepare the original amortization. With that being said, it is incorrect to say that the monthly interest is fixed. The monthly interest is based on the remaining principal balance. It is true however that the monthly payment is fixed, with the shift being between principal and interest.
Posted on 8/2/13 at 12:51 pm to Lsut81
quote:
His monthly interest amounts are fixed, not variable.
Incorrect. His interest amounts each month will change if he pays more towards principal in prior months.
His interest amount is figured out ahead of time if he pays exactly the amount required monthly to pay it off in the amortized amount of time. However if he pays more each month then following months he will be paying less interest which will cause him to pay off the loan early.
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