Basically, say I buy a house on a 20 year mortgage for $200,000. I pay $900 a month for 5 years then decide to sell it. If the house goes for $201,000, would I have to pay off the entire amount to the mortgage company or do I have to pay the amount that I have not paid yet in the remaining 15 years?

When I make a payment, the payment constitutes two parts - interest and principal. The interest portion goes to the bank. The principal payment each month pays down the outstanding balance. The next month, the interest that is paid is the interest rate times the remaining outstanding balance. I make another payment the next month, pay down the balance a bit more, and so on and so on. At the end of 5 years, I’ve paid down the mortage a bit, right?

I can calculate this in a spreadsheet. Say I start with a balance of $100,000 at an interest rate of 12%, which is 1% per month. And say that Ir monthly payment is 1,065.71 (20 year loan). Ir monthly interest is 1% x 100,000 (outstanding principal) = 1,000. The principal payment is therefore 65.71. The next months outstanding principal balance is 1,000 - 65.71. Then I start all over for the next month.

So let’s take Ir example — I take out a loan for $200,000. For argument sake, let’s say I don’t make a downpayment when I purchase the home. After 5 years the house is worth $210,000. The remaining balance on the loan, let’s say, is $195,000. The $15,000 is Irs. I have $10,000 in capital gains. And I paid down the $5,000 with Ir monthly payments.

Additional infos:
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Categories: Housing and Gardening
Tags: interest rate, mortgage calculators, mortgage company, principal balance