How The Interest Adds Up
While the financial aspect of everything can get a bit tricky then end result is that when you have a bank or mortgage company carrying your loan you will pay a lot more for your house in the long run. So the house that you originally bought for $400,000 will actually cost you a whole lot more money than you think. Factoring in your $10,000 down payment you now owe a balance of $390,000. If you get a 30 year note at 5.0% and take the whole 30 years to pay back the original $390,000 with no extra payments or anything you will end up paying $753,697.56 for your home. That is a total of $363,697.56 in interest payments alone.
How You Can Save More Money
While the above figures may appear to be very depressing and discouraging, there are a few things that you can do to save some money when you are repaying your mortgage.
The Good News
It is not all dismal. The good news is that the more money you are able to pay, above and beyond your regular monthly property payment, the more money you will save. Making any extra payments, however small and shabby they may seem to you, can make a huge difference over the overall repayment amount.
Lets first look at your down payment. The more money that you are able to save up and pay for a down payment the better off you will be financially. We can see this in detail when we use the previous figures of a home for $400,000. By putting down a $10,000 down payment on the home you will have saved $19,325.58 over the course of the loan versus having no down payment.
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{ 2 comments… read them below or add one }
Hi Sean,
This is a great example. I think it always helps to see in black and white the effects of only paying the minimum on your loan payment each time it becomes due.
The amount of extra interest you’ll pay is a scary thought. Hopefully scary enough that I’ll work a little harder to pay the mortgage off sooner.
An extra fifty dollars a month makes an incredible difference on your home loan, and is hardly missed from the budget. Great point just keeping your mind open to what is happening and finding ways to make it more in your favour. When it is all said and done we still need the banks or we would never be able to buy a house at all.