Chosen by Asker

the interest is high within the first few years because people will refinance within a few years. servicers pay for the right to service the loan, and they need to recover the cost... the cost is always passed on to the consumer...

by annc

3 years ago

Asker's Rating: 

Its called a teaser rate.

by sfvcyclone- 3 years ago

Interest is high and principle low because you are calculating a loan with a long term. If it were a five year amortizing loan the principle would be much higher. Principle payment is just a function of how long the loan is amortized over. The interest portion drops over time because there is less principle owed so the interest which is calculated on ther balance of that period is lower. You can negotiate any type loan that is agreable to both parties but understand that a straight line loan as you say is not going to pay more interest later in the loan and less up front. Instead you are simply paying an even amount of principle each period so as the interest drops your payment will also drop over time but you start out with a much higher payment. I keep my calculator at work so I can not give you numbers but I assume you would start with a payment at least 30% higher. Incidentaly you can do the exact same thing with an amortizing loan by paying extra each month depending on what kind of prepayment penalties there are on the loan. Take the size of the loan divide by the number of months 360 for a 30 year and make your payment equal to the interest charge plus that amount of principle, probably does not saound so attractive now that you see the difference in the payment. But you can pay some extra principle if you want.

by vtxrider- 3 years ago

Morgages are no different from any other loan in the way the amortize. They all amortize accourding to a bell curve. The only difference from this bell curve and any other bell curve is the time and amounts. Look at your credit card. Look at the minimum amount you need to pay. The amortization is nearly identical to a morgage. If you have $7000 on a credit card, the minimum amount due is about $140/month. That is 2% of the total balance. Now, if the card is charging 14% interest per year, then a little over 1% per month is pure interest. and you are actually paying under 1% towards the principle. If you pay only the minimum balance it will take about 40 years to pay off. If each payment is 1% of the total due, then you need 100 payments to pay the balance off. 100 payments is 100/12 years. Also, remember that the interest on a morgage is tax deductable as is the interest on a home equity loan/line of credit within certain limitations. This reduces the actual interest you are paying per month , since the government is paying you back for doing so in your tax deduction. All of this is reversed for bonds. A morgage is nothing more than a bond that the bank bought so you can buy your home.

by daddyspanksalot- 3 years ago