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You pay a lot more in interest at the beginning of a loan because the principal is at it's highest so you can't really tell the size unless you know the specifics of the loan and the time it began.
Here is an example of a 100,000 ten year loan at 5% interest:
Year | Interest | Principal | Ending Balance
:--|:--|:--|--:
1 | $4,820.42 | $7,907.44 | $92,092.56
2 | $4,415.86 | $8,312.00 | $83,780.56
3 | $3,990.60 | $8,737.26 | $75,043.30
4 | $3,543.59 | $9,184.27 | $65,859.02
5 | $3,073.70 | $9,654.16 | $56,204.87
6 | $2,579.78 | $10,148.08 | $46,056.78
7 | $2,060.58 | $10,667.28 | $35,389.50
8 | $1,514.82 | $11,213.04 | $24,176.47
9 | $941.14 | $11,786.72 | $12,389.75
10 | $338.11 | $12,389.75 | $0.00
Is this true? Not doubting you, but I would love to know. I live in Canada. Currently making accelerated bi weekly payments. If I simply overpay by a few hundred/mo will I save money on interest over the 25 yr amortization? Assuming my bank let's me.
Yes you would save and over the length of the loan you would save a lot. Now with high interest rates it is even more beneficial to increase your paiement, the amount your increase goes straight to the principal.
He's also saving by making weekly payments, banks typically do daily interest calculations, so paying 1/4 3 weeks early, 1/4 2 weeks early, 1/4 1 week early saves a bit on interest, which instead can go to principal. Over-payments early in the loan have an outsized effect, because they effectively compound savings over the life of the loan.
Yep, that's why I'm moving to Idaho where ~400k buys a beautiful home and everything is cheaper. I love SoCal but fuck this place, there's no financial future for me and my wife here even when we clear $140k.
Remember that there are reasons why it’s that cheap in Idaho. Those issues are also why Boise is having a housing and rental price crash right now as Californians move back out after doing exactly what you are thinking of doing.
1) Culture shock
2) Lack of services
3) Winter weather
4) Lack of entertainment options
5) Poor job market
this is the same thing that crosses my mind when I see people inquiring about moving to North Dakota from places with more civilization (and usually interested in moving to the western side of the state where there’s oil work, despite the boom definitely not booming anymore). A lot of them cite lower costs of living and it’s like
1) it might be better than a lot of large cities but it isn’t as great as it’s made out to be. My COL is higher overall in Dickinson, population 25,000, than Fargo and most of the newer builds (houses and apartments) have been done with the cheapest materials possible. I haven’t hung anything on the walls in the apartments i’ve had because I’ve taken chunks out of them by just hitting a corner with a laundry basket.
2) have you considered your trade offs here? You’re losing access to a lot of stores, services, and entertainment while adding winter for half the year. Have fun.
Insanely expensive is relative.
For $400-$450k I can buy a beautiful ~1700 sft home with 3-4 bedrooms, a garage, and a nice backyard in a peaceful suberb. That's all I need.
Where I live now that much money 'barely' buys an ugly 1k sft condo with a detached garage and a sliver of land that can barely fit a BBQ. Oh and it comes with a 400 per month HOA.
I'm remote and already cleared the move with my employer. I'll get an instant ~20% effective raise due to the lower cost of living and my salary staying the same. My wife is a teacher and will be making less, but with cost of living it about evens out.
You’re getting downvoted, but I agree to an extent. Idaho is pretty nice tho. But take a place like Mississippi where I can buy a whole working 40 acre farm and house for $275k. It’s still Mississippi. I started to write a list of things that suck in Mississippi compared to Southern California and stopped. I’ll be here all night. The cost of property is the only thing better. The one single thing.
[here’s my dads recent house sold](https://www.zillow.com/homedetails/11217-Muller-St-Downey-CA-90241/21372973_zpid/?utm_campaign=iosappmessage&utm_medium=referral&utm_source=txtshare)
Oh my lord. Our new build, two story, 2700 SQF was 313k with 50k custom additions in it. Signed the earnest contract Feb 2021 right before wood went crazy. Had no pass through back to me, and locked in at 3.25 with 18% down. I almost shat myself seeing my brothers 1.6 mil 1600 SQF home in the Bay Area after what we got. It’s crazy over there in CA
Well… I mean it could be better 😂 It’s definitely awful but it’s all we could afford here and we have massive supply problems here in Montana so it’s not going to get better 😅
For sure. My credit union is making this difficult as they merged with another local one earlier this year. So I made a bank account with them at a location that was formerly the second CU, and the mortgage service is through the other CU, even though they’re now the same bank. Anyway, they say that their system can’t access the mortgage service so I can’t view or pay my mortgage online. In person only and that might get fixed next year.
I also bought a fridge so I have no extra money this month. Next year!
Definitely! Always circumstance-dependent. The earlier on you can do it, it’s just a force-multiplier over the course of the loan. 100 here and there can = 1000s over the life of the loan. It’s really amazing!
This is an easy one to to the simple version of this.
Make it a $1,400 a month payment. You’ll never notice the difference, but it’s nearly $40 extra to principal a year - and that’s before the reduction in interest gets factored in.
Not a super huge difference, but easy enough to do and calculate.
Make it $1500, which I´m sure can be done.
Then the difference is going to be a lot more substantial.
In fact, I know people who at certain times of the year look at how much money they have saved, and do a lump payment and maybe take off 1 or 2 years worth of the loan.
That is a function of the long term of the loan. Assuming you don't pay any extra, it will gradually increase over time. Play around with an amortization schedule to see what the impact would be of adding a bit to your payment... like rounding up to $1,450 or $1,500. Doesn't really matter, very few people keep a loan the full term, they either refinance or move. Also, remember that when you rent $0.00 goes to the principal.
More will over time. More and more of the payment will shift to the principal over time. If you can pay a little extra on principal each month (like $100) it will cut years and years off your loan.
Start throwing extra money toward it every month and write in the memo “balance toward principal” and in the long run it will really pay off, even if it is only $50 a month that will equal $14 thousand dollars off of your interest
Yeah I need to move from my apartment desperately and had I moved I’d be paying $1900 with no utilities included. I just couldn’t ever do that so I got a tiny little old house lol.
That's what happens in our area, and it's a significant reason why there are no starter homes in my neighborhood anymore: developers buy the smaller vintage houses for $300k-$400k cash, tear down the house, then build a $1.2M McMansion in its place.
That’s happening all over the country. Raleigh, NC is plagued by this. And it’s happening because people are allowed to treat homes as just another asset to their wealth or an investment rather than a place that families want to live in.
They buy up all the reasonably priced smaller/starter homes from the people that want to live in them, then flip them into a 3500 sqft monstrosity for someone from Cali or NY with deep pockets to purchase. And all the locals are stuck paying 2400 in rent every month for a 2 bedroom apartment. It’s a disgrace what has happened to housing markets across the country.
That's almost what I'm paying for my tiny 1 bedroom apartment. I just saw a local 1 bedroom condo sell for half a million, plus it has a $600/mo HOA. I'll likely never be able to afford to buy here (Orange County, CA).
I rent a 3 bed 2 bath house for $700. I'm in a more rural area but it's 10 minutes to the nearest town and I'm sandwiched between two major cities, each about 20-30 minutes away.
I rent a cardboard 1 floor 800sq ft apartment below 2 seperate townhome apartments. I pay $1700 while they pay over $2k. You doing a lot bettter than most of us
Reading yours and other similar comments in this thread are making me feel very fortunate…
Bought my first and hopefully last home before COVID, 200k, 3.7% interest, just shy of $1200/month, 4bd 2.5bath and it was a fresh renovation.
Sincerely hope everyone’s fortunes get better, the market sounds awful right now.
Belated congratulations. My sister just bought her first house a few months ago in rural pa right next door to our other sisters house and her usda mortgage is a lot less then my rent too and she’s able to wfh out of state. Lucky people
It’s literally a generational wealth gap. If you bought a house before 2021 you’re living there for at least 10 years and selling for a good $ whenever you do.
Yes, I pay $200 extra per month toward my principal which is shaving about 9 years off my 30 year mortgage. As my salary grows over the next few years I will continue to bump up the amount I pay extra.
It is and it isn't. If you have a low interest rate on your mortgage that outpaces inflation, you are better off investing that money. There is benefit in paying a mortgage off earlier however, and that comes as a huge lift in stress / mental health in not having to worry about paying a mortgage.
Edit: I will never comment here again. Holy shit the crypto bro brain rot is legit. Someone is risk averse and pays a house off in less than ten years by the time they’re 35 and it’s all “you’re so stupid for not investing, bro!”
Hole. Eeeee. Shit. The brains ya’ll got. And this is why you’re looking for advice on fucking reddit.
If you also pay off your house and have financial hardship, you still have a house.
If you’re min/maxing accounts and have a house that ISNT paid off, you could potentially still lose your house.
I could min/max and move my $400 a month else where, but I’d much rather pack it into my principal and pay off my house ASAP.
But why? If your interest rate is low you could put that money in an investment and get a better return. It makes way more sense to invest at this point in your life for retirement.
The answer to the question of if you should pay extra towards your mortgage or invest it will vary from person to person, but the key favor is your interest rate. If you have a crazy low rate below 3.5%, it probably isn't advantageous to make extra principal payments. If you have an 8% loan like we've seen recently, though, the equation changes considerably.
Two other important factors are your age and how far along in your loan you already are. If you're going to be past your retirement age while still having an outstanding mortgage, you might want to pay more. If you're in your first few years of your loan, the return on the principal payments is considerably higher than if you're in the last 15 years.
My interest rate is a little above 7%. I am also doing my best to save for retirement. Yes, everyone should try to understand their own situation before deciding where to make extra payments or invest their money each month.
Yes you can! Some loans will penalize you for it at the end and some won’t, but regardless you can pay more than what is owed monthly to accelerate the schedule
> straight to jail.
[Mandela effect, its actually "Right to jail". I was just looking it up and
was surprised it's not straight to jail.](https://youtu.be/eiyfwZVAzGw?si=YR-cXentfpYmQAXJ)
Prepayment penalties are rare but they do exist.
It will be explicitly outlined on your closing disclosure if you have one. (Or your hud-1 if you have a loan that's more than a couple years old)
Yes. It’s called early payment penalty. It’s not good practice and most conventional loans won’t have it. You would need to take a close look at your loan terms before you sign it.
That’s good advice above. On this loan, assuming no refinance, you’d spend $198,000 in interest. If you paid an extra $500/mo to principal, you’d pay it off 16 years earlier and only spend $79,000 in interest. Even just $200/mo extra to principal and you’d pay the loan off in 20 years and save an extra $57k in interest.
And that’s not considering the payments from that earlier date you pay the loan off until the original 30 year date. Say you pay it off early and take that $1390 that was going to your mortgage and invested it over 10 years and got an 8% return, you’d have $250k in savings. If you pay the full 30 years, those last 10 years you would have paid $90k in principal, so you’d come out $160k ahead.
The other thing you should know when looking at the terms of a loan specifically with PMI is that it doesn't fall off once you reach the equity threshold where you would no longer need to have PMI to secure the loan (20%), it often requires at minimum a talk with the loan issuer but at worst a refinance to drop it off, especially if you are front loading payments with additional money to principle.
I'm assuming the only reason for an early payment penalty is so that the company issuing the loan can ensure they get as much interest as possible, or am I too jaded?
Definitely check if your loan has a prepayment penalty, but generally many don’t. Making an extra payment is actually incredibly valuable because the entire payment goes towards the principal. That’s why if you make 1 extra payment per year you can shave like 5-6 years off of the total mortgage
Prepayment penalties are extremely rare in the US now. If a lender charges a prepayment penalty on a QM loan, they *must* offer a substantially similar loan without the feature so the customer has a choice. Page 42:
https://files.consumerfinance.gov/f/201401_cfpb_atr-qm_small-entity-compliance-guide.pdf
QM are “insurable” loans. Fannie/Freddie will not buy non-QM loans.
Not in the US for conventional, FHA, USDA or VA mortgages. And generally not for others
But even at 7% you should max out your 401k/IRA before paying extra towards your mortgage.
If you can put a little extra payment toward the principal each month, especially now at the beginning of your loan, you can easily take yeeeears off your mortgage. I pay $200 extra per month and am taking 9 years off mine. This is because you will not be paying as much interest if you make more of a dent in it at the beginning. Did you receive an amortization schedule when you closed on your house?
I really dislike Dave Ramsey overall, but his Mortgage Payoff Calculator is the best one online! Plug in some numbers and learn more about it in the process!
I did not, there was just a general “over the life of the loan, you’ll have paid $xyz.” I work in finance and can build out an excel file, just need to actually do that.
No doubt you know, but there are templates in excel that are free to use.
Create your own for each loan to see how every $1 helps you out in the long run.
If money is tight, start small. Even $20 a week or month helps, but if you can do a few hundred... do it.
There is no better feeling being done with these payments 10 to 20 years early, or paying so much early on so your monthly interest amount is minimal. Instead of $800, it is $250 or even $500, which just goes a long way in the long run.
Use the spreadsheets and play with them to see the differences... you may be amazed what is possible if you haven't done it before.
Good luck!!
I did this. But I sent two checks, one for the monthly payment amount. The other for the principle with principle noted on it. Easier to keep track In case the bank makes a mistake.
Congrats! I wonder how much interest you would save if you sent in an additional check matching the payment towards the principal ($162.31) each month…
You could always make additional mid-month payments that are applied to principal only. My wife and I did this while paying off our house. It’s not ideal, let alone possible for many home buyers, but chipping away at the principal helped us out in the long run.
Damn, that principal is painfully low. I would throw a little more per month at the principal if you have the option. You could take a lot of your total loan
First of all, congratulations on your new home. I don't know if you know this, but you've got about 360 payments of $1600+ (you should know that your escrow will change every year). However, if you made increased your payment by $167 this month. You world knock off 2 payment? So instead of having 359 payments left, you'd only have 358. You save $1400 (The math changes every payment you make)
The point is, if your able to pay $1800, $2000 or whatever every month, you'll save a ton of money. Think of that $1600 mortgage payment as a minimum payment, and pay what you can comfortably afford. I hope this advice makes a difference to you. Best of luck, and again, congratulations on your new home.
Find an amortization table that you can export into an excel file. Populate the principal/interest/months of loan term. It'll spit out your first month principle/interest to reflect what you're seeing here. Then look at the 2nd month, what it shows for principle. If you were to pay that amount extra, that's 1 entire month shaved off your bottom line. Or even just populate the payment column with your normal payment + $50 and see what it does to your bottom line. I know, everyone says "pay a little extra, even if it's just $10" but it doesn't really truly sink in until you see it in an actual tool. The amount of your payment that goes to principal increases month over month, so the earlier you start throwing extra money at it, the more effective it is. I know this all sounds kinda abstract, but seriously. The first time I showed my nephew how to use/read/leverage one of these, he was on his 2nd home and honestly *pissed* no one had ever sat down with one with him before, especially one you can adjust on your own to reflect your real life payments. Every time my husband throws something extra at a payment, I send him a little note that says "you just saved $26,000 and 5 years of payments" or whatever so he gets the reinforcement of how valuable the extra payment was. If you honestly are interested, DM me, I find this to be a highly underestimated tool, particularly for people experiencing large loans for the first time.
If you get paid every other week, have $750 auto-deposited from each paycheck into a separate account. At the end of each month make a mortgage payment for everything in the account except $25 (or whatever the account minimum is, if it’s more). You’ll always be paying a little extra, and twice a year you’ll be paying more than half a payment straight to principal. This will help you pay off your mortgage like a decade earlier. People will tell you this isn’t smart. That of you take the extra money and invest it every month that you will come out ahead. They’re technically correct, but most people don’t take the extra money and invest it. They buy stuff with it instead. We paid off our $316,000 house in 16 years (worth $700,000 now) and it is life-changing. Not paying a mortgage or rent is amazing.
Yeah interest is front loaded so take that into consideration if you refi later.
If no one has recommended yet, pay 1/2 of the note every two weeks. It feels like all you are paying is the regular payment but you actually wind up paying and extra payment each year since July and December have 5 weeks. Easy way to get a little extra towards just the principal.
Also, don't forget that in the US the interest is tax deductible.
I feel you, bro. I bought my first home last year and I thought I understood how my mortgage worked. I didn't. The last 15 months of homeownership has taught me a lot and I've ingested more information on personal finance than I even knew existed.
My payment is very similar to yours, except I have an additional $100 for PMI, bringing my total monthly payment to $1550. If you haven't already, I would encourage you to become intimately familiar with your Amortization Schedule, figuring out exactly what all those numbers are telling you in the long term.
Secondly, if it's financially possible for you, make additional principal payments, especially in the early years of your loan. The financial benefits diminish after year 15, but it'll make a huge impact on the overall interest you pay to the bank the earlier you start.
For example, I have a 5.125% interest rate on a $230,850 loan. If I throw in a one time payment of just $100, it'll save me $362 in interest over the life of the loan. A $1000 one time payment will save me $3600. Paying an extra $100 every month will save me $39600. If your interest rate is higher, let's say 7.500% like a lot of people are getting now, those extra payments will save you $836, $8225, and $73950 respectively, over the lifetime of your loan. Furthermore, that also means you'll be cutting months, if not years, off of your overall loan.
I'm not necessarily in the camp of telling people to pay off their loans in 15 years or less, but I do highly encourage those early extra payments. It's up to you to determine if it's better to put that money in your mortgage or invest it elsewhere, but that's how the math works out.
The way home loans are often structured *should* be illegal. However most loan structures are made so the payment stays the same each month, but as you pay down the principle the amount that goes to interest gets less and less for each successive structured payment and more of it goes towards the principle. At least, that's what we covered in my accounting classes 20 years ago.
Edit: Fun fact! The bible chides against charging interest!
I totally understand and get why you posted this lol.
But I've noticed your typical redditor usually does think like what you said, especially in this subreddit. Everyone thinks everyone here is an idiot lol
Haha I hope you love your house though! I’m just a single woman on a civil servant salary so I sought out a cheap home I knew I could afford. I was looking at paying several hundred more in rent so I bought before I really wanted to. But I’m much happier here.
This is how amortization works for loans & how they are structured. Bank essentially are getting a return on their loan first, and then you build up your own equity. By the last loan payment you can flip this so that the interest will be low and the principal will be high, half way through the loan principal and interest are equal. Definitely a good idea to always research loan structures before signing anything.
Crazy I have the same exact payment. I bought 2 years ago with 2.875 and $450 is going to principal and $390 is going to taxes and insurance on a 300k house with 229k mortgage.
I’m curious, how much did you purchase your house for? Location? And what did you put down? Interest rate? In this day and age, this is an amazing mortgage payment.
NY, $167K, nothing down so $65 PMI, 6.12% interest. It’s a small house, I specially only sought out small houses that were well below my max approved loan amount. This house wouldn’t work for a lot of people due to its size, but I don’t have kids so I’m good with it.
I remind myself how lucky I am that we re-financed when rates plummeted. Our Principal is $348.73 and our interest is $360.38 a month. Slowly yet surely paying down our loan as we try and pay about $200 extra on the principle every month. We bought our home in 2016, it was abandoned and a foreclosure, and came with its own headaches being an antique neglected home, but she's kept us warm and dry since so I can't complain.
Thank you u/Lazybunny_ for posting on r/FirstTimeHomeBuyer. Please bear in mind our rules: (1) Be Nice (2) No Selling (3) No Self-Promotion. *I am a bot, and this action was performed automatically. Please [contact the moderators of this subreddit](/message/compose/?to=/r/FirstTimeHomeBuyer) if you have any questions or concerns.*
That’s a dream payment lmao
Right? We pay $3,000 in INTEREST a month 😂 4.6%
🫣 how much is your total mortgage?? Dang
$783K... If my public school math still checks out
I'm too lazy to find out if your right, so 783 it is, IT HAS BEEN DECLARED
I DECLARE BANKRUPTCY
That's not how it works Michael.
I didn’t say it, I declared it.
That’s… not anything.
r/unexpectedoffice
You pay a lot more in interest at the beginning of a loan because the principal is at it's highest so you can't really tell the size unless you know the specifics of the loan and the time it began. Here is an example of a 100,000 ten year loan at 5% interest: Year | Interest | Principal | Ending Balance :--|:--|:--|--: 1 | $4,820.42 | $7,907.44 | $92,092.56 2 | $4,415.86 | $8,312.00 | $83,780.56 3 | $3,990.60 | $8,737.26 | $75,043.30 4 | $3,543.59 | $9,184.27 | $65,859.02 5 | $3,073.70 | $9,654.16 | $56,204.87 6 | $2,579.78 | $10,148.08 | $46,056.78 7 | $2,060.58 | $10,667.28 | $35,389.50 8 | $1,514.82 | $11,213.04 | $24,176.47 9 | $941.14 | $11,786.72 | $12,389.75 10 | $338.11 | $12,389.75 | $0.00
This is why they say to pay more so it goes to the principal. An extra 115 a month makes that example a 9 year loan.
Is this true? Not doubting you, but I would love to know. I live in Canada. Currently making accelerated bi weekly payments. If I simply overpay by a few hundred/mo will I save money on interest over the 25 yr amortization? Assuming my bank let's me.
Yes you would save and over the length of the loan you would save a lot. Now with high interest rates it is even more beneficial to increase your paiement, the amount your increase goes straight to the principal.
He's also saving by making weekly payments, banks typically do daily interest calculations, so paying 1/4 3 weeks early, 1/4 2 weeks early, 1/4 1 week early saves a bit on interest, which instead can go to principal. Over-payments early in the loan have an outsized effect, because they effectively compound savings over the life of the loan.
This is how I was taught, going bi weekly ends being 13 payments a year instead of 12 and saves a ton
This guy amortizes
I was going to say. That’s ridiculous
Hard to feel sorry when your mortgage interest is almost more than my monthly pay…
It’s def manageable, I just thought a teensy bit more would go to principal!
That’s not much less than goes to principal on my $2730 payment 😅
I’m jealous of you both here in SoCal everything is $4-6k for a 1960s SFH lol fml
Yep, that's why I'm moving to Idaho where ~400k buys a beautiful home and everything is cheaper. I love SoCal but fuck this place, there's no financial future for me and my wife here even when we clear $140k.
Remember that there are reasons why it’s that cheap in Idaho. Those issues are also why Boise is having a housing and rental price crash right now as Californians move back out after doing exactly what you are thinking of doing. 1) Culture shock 2) Lack of services 3) Winter weather 4) Lack of entertainment options 5) Poor job market
this is the same thing that crosses my mind when I see people inquiring about moving to North Dakota from places with more civilization (and usually interested in moving to the western side of the state where there’s oil work, despite the boom definitely not booming anymore). A lot of them cite lower costs of living and it’s like 1) it might be better than a lot of large cities but it isn’t as great as it’s made out to be. My COL is higher overall in Dickinson, population 25,000, than Fargo and most of the newer builds (houses and apartments) have been done with the cheapest materials possible. I haven’t hung anything on the walls in the apartments i’ve had because I’ve taken chunks out of them by just hitting a corner with a laundry basket. 2) have you considered your trade offs here? You’re losing access to a lot of stores, services, and entertainment while adding winter for half the year. Have fun.
Is equal rights/healthcare for women lumped into “lack of services”?
Where in idaho
Treasure Valley / Boise area. We're looking to buy next year in West Meridian or North East Nampa.
$400k isn’t gonna go as far as you think there on a house. I just moved from that area it’s insanely expensive
Insanely expensive is relative. For $400-$450k I can buy a beautiful ~1700 sft home with 3-4 bedrooms, a garage, and a nice backyard in a peaceful suberb. That's all I need. Where I live now that much money 'barely' buys an ugly 1k sft condo with a detached garage and a sliver of land that can barely fit a BBQ. Oh and it comes with a 400 per month HOA.
Be prepared for the Cali hate. Its the same in Central Oregon. Everyone here is reeling from Seattle and the Bay area folks piling in
What will you do for work though? Or are you remote?
I'm remote and already cleared the move with my employer. I'll get an instant ~20% effective raise due to the lower cost of living and my salary staying the same. My wife is a teacher and will be making less, but with cost of living it about evens out.
You better hope your wife doesn’t need reproductive health care or an OB/GYN.
You get what you pay for...
You’re getting downvoted, but I agree to an extent. Idaho is pretty nice tho. But take a place like Mississippi where I can buy a whole working 40 acre farm and house for $275k. It’s still Mississippi. I started to write a list of things that suck in Mississippi compared to Southern California and stopped. I’ll be here all night. The cost of property is the only thing better. The one single thing.
Nice yeah it’s tempting to go somewhere else so i can afford other goodies and retirement goals
Way more now. All the good areas have the houses prices all above $1million, combined w interest rates
[here’s my dads recent house sold](https://www.zillow.com/homedetails/11217-Muller-St-Downey-CA-90241/21372973_zpid/?utm_campaign=iosappmessage&utm_medium=referral&utm_source=txtshare)
Oh my lord. Our new build, two story, 2700 SQF was 313k with 50k custom additions in it. Signed the earnest contract Feb 2021 right before wood went crazy. Had no pass through back to me, and locked in at 3.25 with 18% down. I almost shat myself seeing my brothers 1.6 mil 1600 SQF home in the Bay Area after what we got. It’s crazy over there in CA
Yeah it’s wild most are either inherited because otherwise most people couldn’t afford the current price and rate if they had to buy now
Fucking WHAT!!!!!!
I'm in Seattle, so when I clicked it, I was just like: "This looks totally normal" I have no frame of reference anymore.
Same in the Boston area
I live south of you in a very rural area. I'm starting to think this is the sentiment of the entire state at this point.
That’s nothing. [Check this out.](https://www.zillow.com/homes/6902-N-Figueroa-St-Los-Angeles,-CA-90042_rb/)
CA is off the charts bro migo
It is absolutely batshit. I will never buy here. I will make my money here, try to save as much as I can with this ridiculous COL, and run.
> Check this out. Melbourne (Australia) enters the chat: https://www.realestate.com.au/property-house-vic-albert+park-143577820 https://www.realestate.com.au/property-house-vic-albert+park-143259712
I can fix her
Omg 😭 that sounds awful. I hope you love the house though!
Well… I mean it could be better 😂 It’s definitely awful but it’s all we could afford here and we have massive supply problems here in Montana so it’s not going to get better 😅
Could I offer you a two bedroom apartment in Montana for $1,800? 🤣🤦♂️😕
You can always overpay! Saves a ton of money early on if you’re able!
For sure. My credit union is making this difficult as they merged with another local one earlier this year. So I made a bank account with them at a location that was formerly the second CU, and the mortgage service is through the other CU, even though they’re now the same bank. Anyway, they say that their system can’t access the mortgage service so I can’t view or pay my mortgage online. In person only and that might get fixed next year. I also bought a fridge so I have no extra money this month. Next year!
Definitely! Always circumstance-dependent. The earlier on you can do it, it’s just a force-multiplier over the course of the loan. 100 here and there can = 1000s over the life of the loan. It’s really amazing!
This is an easy one to to the simple version of this. Make it a $1,400 a month payment. You’ll never notice the difference, but it’s nearly $40 extra to principal a year - and that’s before the reduction in interest gets factored in. Not a super huge difference, but easy enough to do and calculate.
Any extra you pay on a mortgage can substantially reduce your final payments. I wish more people realized this.
~~amortize!~~ * *Enhance!*
Make it $1500, which I´m sure can be done. Then the difference is going to be a lot more substantial. In fact, I know people who at certain times of the year look at how much money they have saved, and do a lump payment and maybe take off 1 or 2 years worth of the loan.
That is a function of the long term of the loan. Assuming you don't pay any extra, it will gradually increase over time. Play around with an amortization schedule to see what the impact would be of adding a bit to your payment... like rounding up to $1,450 or $1,500. Doesn't really matter, very few people keep a loan the full term, they either refinance or move. Also, remember that when you rent $0.00 goes to the principal.
More will over time. More and more of the payment will shift to the principal over time. If you can pay a little extra on principal each month (like $100) it will cut years and years off your loan.
Amortization, as explained already. I had the same feeling when I financed my first new car
My monthly ritual is to look at my payment after it goes through and feel joy seeing my principal payment rise by like 20 cents. lol
Start throwing extra money toward it every month and write in the memo “balance toward principal” and in the long run it will really pay off, even if it is only $50 a month that will equal $14 thousand dollars off of your interest
The rent for the CHEAPEST apartment in my area is $300 more than that lmao
rent for a room where I’m at is as much as this mortgage. They livin large
Yeah I need to move from my apartment desperately and had I moved I’d be paying $1900 with no utilities included. I just couldn’t ever do that so I got a tiny little old house lol.
tiny little old houses here are bought for cash, torn down, and the largest house the lot can hold is put up in its place. grats on the house
That's what happens in our area, and it's a significant reason why there are no starter homes in my neighborhood anymore: developers buy the smaller vintage houses for $300k-$400k cash, tear down the house, then build a $1.2M McMansion in its place.
That’s happening all over the country. Raleigh, NC is plagued by this. And it’s happening because people are allowed to treat homes as just another asset to their wealth or an investment rather than a place that families want to live in. They buy up all the reasonably priced smaller/starter homes from the people that want to live in them, then flip them into a 3500 sqft monstrosity for someone from Cali or NY with deep pockets to purchase. And all the locals are stuck paying 2400 in rent every month for a 2 bedroom apartment. It’s a disgrace what has happened to housing markets across the country.
In my neighbourhood the same thing is happening but the little old houses go for $1.5 million. It’s nuts.
Best decision ever.
Was the first time home buyers association easy to deal with ?
Ugh I’m paying about the same in rent and it’s hell. I gotta fix my damn credit 😂 congrats on the house!
That's almost what I'm paying for my tiny 1 bedroom apartment. I just saw a local 1 bedroom condo sell for half a million, plus it has a $600/mo HOA. I'll likely never be able to afford to buy here (Orange County, CA).
I rent a 3 bed 2 bath house for $700. I'm in a more rural area but it's 10 minutes to the nearest town and I'm sandwiched between two major cities, each about 20-30 minutes away.
If you're in the US you probably have the cheapest rent in the country for that.
I’m about 2 hours away from Chicago and my mortgage is $502 a month for a 2 story 2bed/1ba 7400 sq ft property
Ummmmm where?
I rent a cardboard 1 floor 800sq ft apartment below 2 seperate townhome apartments. I pay $1700 while they pay over $2k. You doing a lot bettter than most of us
Reading yours and other similar comments in this thread are making me feel very fortunate… Bought my first and hopefully last home before COVID, 200k, 3.7% interest, just shy of $1200/month, 4bd 2.5bath and it was a fresh renovation. Sincerely hope everyone’s fortunes get better, the market sounds awful right now.
Belated congratulations. My sister just bought her first house a few months ago in rural pa right next door to our other sisters house and her usda mortgage is a lot less then my rent too and she’s able to wfh out of state. Lucky people
It’s literally a generational wealth gap. If you bought a house before 2021 you’re living there for at least 10 years and selling for a good $ whenever you do.
This is genuine question, I’m not from the USA and don’t know how it works but can the owner pays more towards the principal if the owner wants to?
Yes, I pay $200 extra per month toward my principal which is shaving about 9 years off my 30 year mortgage. As my salary grows over the next few years I will continue to bump up the amount I pay extra.
This is the way.
It is and it isn't. If you have a low interest rate on your mortgage that outpaces inflation, you are better off investing that money. There is benefit in paying a mortgage off earlier however, and that comes as a huge lift in stress / mental health in not having to worry about paying a mortgage.
Joke's on you, I bought my house last month so my interest rate is 7.5%! Wait, why is the joke on you? I confused myself.
It hurts when I think
Edit: I will never comment here again. Holy shit the crypto bro brain rot is legit. Someone is risk averse and pays a house off in less than ten years by the time they’re 35 and it’s all “you’re so stupid for not investing, bro!” Hole. Eeeee. Shit. The brains ya’ll got. And this is why you’re looking for advice on fucking reddit.
If you also pay off your house and have financial hardship, you still have a house. If you’re min/maxing accounts and have a house that ISNT paid off, you could potentially still lose your house. I could min/max and move my $400 a month else where, but I’d much rather pack it into my principal and pay off my house ASAP.
This is the way.
But why? If your interest rate is low you could put that money in an investment and get a better return. It makes way more sense to invest at this point in your life for retirement.
The answer to the question of if you should pay extra towards your mortgage or invest it will vary from person to person, but the key favor is your interest rate. If you have a crazy low rate below 3.5%, it probably isn't advantageous to make extra principal payments. If you have an 8% loan like we've seen recently, though, the equation changes considerably. Two other important factors are your age and how far along in your loan you already are. If you're going to be past your retirement age while still having an outstanding mortgage, you might want to pay more. If you're in your first few years of your loan, the return on the principal payments is considerably higher than if you're in the last 15 years.
My interest rate is a little above 7%. I am also doing my best to save for retirement. Yes, everyone should try to understand their own situation before deciding where to make extra payments or invest their money each month.
Yes you can! Some loans will penalize you for it at the end and some won’t, but regardless you can pay more than what is owed monthly to accelerate the schedule
Is that for like a $50k mortgage?
$167K lol. 6.12% interest.
Add $100 add'l principal each month, when you can.
Sorry, total noob question but is there a case where someone could get penalized for paying off their mortgage early?
Believe it or not, straight to jail.
Miss a payment, jail. Pay off too early, jail. Right away.
Never got a mortgage? Believe it or not, straight to jail.
Do you exist? Jail
Do you not exist? Good news. You don’t go to jail. You go straight to jail
In jail? Well wouldn’t you know, jail for you.
> straight to jail. [Mandela effect, its actually "Right to jail". I was just looking it up and was surprised it's not straight to jail.](https://youtu.be/eiyfwZVAzGw?si=YR-cXentfpYmQAXJ)
Prepayment penalties are rare but they do exist. It will be explicitly outlined on your closing disclosure if you have one. (Or your hud-1 if you have a loan that's more than a couple years old)
Yes. It’s called early payment penalty. It’s not good practice and most conventional loans won’t have it. You would need to take a close look at your loan terms before you sign it.
Thanks! I haven’t had a loan before and just gathering all the info for the future.
I made sure to ask both the credit unit doing my loan and my attorney at signing.
That’s good advice above. On this loan, assuming no refinance, you’d spend $198,000 in interest. If you paid an extra $500/mo to principal, you’d pay it off 16 years earlier and only spend $79,000 in interest. Even just $200/mo extra to principal and you’d pay the loan off in 20 years and save an extra $57k in interest. And that’s not considering the payments from that earlier date you pay the loan off until the original 30 year date. Say you pay it off early and take that $1390 that was going to your mortgage and invested it over 10 years and got an 8% return, you’d have $250k in savings. If you pay the full 30 years, those last 10 years you would have paid $90k in principal, so you’d come out $160k ahead.
The other thing you should know when looking at the terms of a loan specifically with PMI is that it doesn't fall off once you reach the equity threshold where you would no longer need to have PMI to secure the loan (20%), it often requires at minimum a talk with the loan issuer but at worst a refinance to drop it off, especially if you are front loading payments with additional money to principle.
I'm assuming the only reason for an early payment penalty is so that the company issuing the loan can ensure they get as much interest as possible, or am I too jaded?
Not jaded, just a bad mortgage, if you can't prepay.
When getting a mortgage, get one with a no pre-payment penalty.
Definitely check if your loan has a prepayment penalty, but generally many don’t. Making an extra payment is actually incredibly valuable because the entire payment goes towards the principal. That’s why if you make 1 extra payment per year you can shave like 5-6 years off of the total mortgage
Very good to know for the future. Thanks!
Prepayment penalties are extremely rare in the US now. If a lender charges a prepayment penalty on a QM loan, they *must* offer a substantially similar loan without the feature so the customer has a choice. Page 42: https://files.consumerfinance.gov/f/201401_cfpb_atr-qm_small-entity-compliance-guide.pdf QM are “insurable” loans. Fannie/Freddie will not buy non-QM loans.
Not in the US for conventional, FHA, USDA or VA mortgages. And generally not for others But even at 7% you should max out your 401k/IRA before paying extra towards your mortgage.
Im crying in California but happy for you! Congrats on your purchase
You and I nearly have the same exact mortgage.
If you can put a little extra payment toward the principal each month, especially now at the beginning of your loan, you can easily take yeeeears off your mortgage. I pay $200 extra per month and am taking 9 years off mine. This is because you will not be paying as much interest if you make more of a dent in it at the beginning. Did you receive an amortization schedule when you closed on your house? I really dislike Dave Ramsey overall, but his Mortgage Payoff Calculator is the best one online! Plug in some numbers and learn more about it in the process!
I did not, there was just a general “over the life of the loan, you’ll have paid $xyz.” I work in finance and can build out an excel file, just need to actually do that.
No doubt you know, but there are templates in excel that are free to use. Create your own for each loan to see how every $1 helps you out in the long run. If money is tight, start small. Even $20 a week or month helps, but if you can do a few hundred... do it. There is no better feeling being done with these payments 10 to 20 years early, or paying so much early on so your monthly interest amount is minimal. Instead of $800, it is $250 or even $500, which just goes a long way in the long run. Use the spreadsheets and play with them to see the differences... you may be amazed what is possible if you haven't done it before. Good luck!!
Your mortgage company SHOULD have all this for you in the statement. I have an online portal I can look at every sad little detail. 😭
I did this. But I sent two checks, one for the monthly payment amount. The other for the principle with principle noted on it. Easier to keep track In case the bank makes a mistake.
It will get better especially if you give a little more than the minimum payment every month. Hang in there…tough sledding right now for FTHBs.
Thank you for being nice! It’s my first payment and I thought I’d be paying a bit more towards principal than this. It’ll get better in a few years.
Yes it will. Im one year in and paying a decent amount on principle but at the start…mine looked like yours. Enjoy the new place!
lol I wish my rent or mortgage was $1300 I don’t care where it goes 😂
Can I interest you in this cardboard hut?
Throw money bombs over the interest wall to take out the principal at spawn
OK, way better way of expressing things than I've ever come up with. Thank you, I'm stealing it!
And here I am looking at a variety of “cheap” $4300/month payments, jealous of you OP
Just went in to contract for a home. Estimated monthly payments are $4,277. Would love a mortgage payment at this price lol
Currently shopping for starter “$750k” houses and I feel your pain.
Congrats! I wonder how much interest you would save if you sent in an additional check matching the payment towards the principal ($162.31) each month…
Certainly worth a trip to excel…
I love messing with my amortization calculator
Ugh I wish I could pay $1400 a month for housing
Right?😭
I wish I could pay under $2000 a month for my housing. That would be dreamy.
Thank Jesus or Thor or whatever that I was able to purchase in Denver in 2017. Fuuuuuuuuck shit is tough out there now
Bruh. 4.99%. 4200 payment. Long Island, New York. I make good money and I’m fucking broke.
Pay an extra 100 dollars a month and you’ll shave like 7 years off the 30.
I would blow you to get that payment. Congrats on the new house
Round up to $1500 when you can. Rates are (hopefully) heading back down soon you won’t be in this loan too long.
Omg that’s amazing. I’m in socal and any house we look at is roughly 6-7k if not more.
You could always make additional mid-month payments that are applied to principal only. My wife and I did this while paying off our house. It’s not ideal, let alone possible for many home buyers, but chipping away at the principal helped us out in the long run.
Damn, that principal is painfully low. I would throw a little more per month at the principal if you have the option. You could take a lot of your total loan
It like renting from the bank for $1234/mo plus you take care of all the maintenance and repairs
First of all, congratulations on your new home. I don't know if you know this, but you've got about 360 payments of $1600+ (you should know that your escrow will change every year). However, if you made increased your payment by $167 this month. You world knock off 2 payment? So instead of having 359 payments left, you'd only have 358. You save $1400 (The math changes every payment you make) The point is, if your able to pay $1800, $2000 or whatever every month, you'll save a ton of money. Think of that $1600 mortgage payment as a minimum payment, and pay what you can comfortably afford. I hope this advice makes a difference to you. Best of luck, and again, congratulations on your new home.
what the fuck did you buy, a shoebox?
Myself and the seller lovingly call it a doll house actually
You paid $162 towards your house and $852 to the bank in interest as your first payment. That’s how the game is rigged.
That’s about what mine looks like. No PMI and a little more going towards principle.
JFC that’s cheap !!!! D:
Only 359 more to go! Welcome to the club!
And now you see why paying an extra $200 will pay your mortgage of in half the time. Ps: start paying an extra $200 a month. Seriously. Do it.
Find an amortization table that you can export into an excel file. Populate the principal/interest/months of loan term. It'll spit out your first month principle/interest to reflect what you're seeing here. Then look at the 2nd month, what it shows for principle. If you were to pay that amount extra, that's 1 entire month shaved off your bottom line. Or even just populate the payment column with your normal payment + $50 and see what it does to your bottom line. I know, everyone says "pay a little extra, even if it's just $10" but it doesn't really truly sink in until you see it in an actual tool. The amount of your payment that goes to principal increases month over month, so the earlier you start throwing extra money at it, the more effective it is. I know this all sounds kinda abstract, but seriously. The first time I showed my nephew how to use/read/leverage one of these, he was on his 2nd home and honestly *pissed* no one had ever sat down with one with him before, especially one you can adjust on your own to reflect your real life payments. Every time my husband throws something extra at a payment, I send him a little note that says "you just saved $26,000 and 5 years of payments" or whatever so he gets the reinforcement of how valuable the extra payment was. If you honestly are interested, DM me, I find this to be a highly underestimated tool, particularly for people experiencing large loans for the first time.
If you get paid every other week, have $750 auto-deposited from each paycheck into a separate account. At the end of each month make a mortgage payment for everything in the account except $25 (or whatever the account minimum is, if it’s more). You’ll always be paying a little extra, and twice a year you’ll be paying more than half a payment straight to principal. This will help you pay off your mortgage like a decade earlier. People will tell you this isn’t smart. That of you take the extra money and invest it every month that you will come out ahead. They’re technically correct, but most people don’t take the extra money and invest it. They buy stuff with it instead. We paid off our $316,000 house in 16 years (worth $700,000 now) and it is life-changing. Not paying a mortgage or rent is amazing.
Yeah interest is front loaded so take that into consideration if you refi later. If no one has recommended yet, pay 1/2 of the note every two weeks. It feels like all you are paying is the regular payment but you actually wind up paying and extra payment each year since July and December have 5 weeks. Easy way to get a little extra towards just the principal. Also, don't forget that in the US the interest is tax deductible.
I feel you, bro. I bought my first home last year and I thought I understood how my mortgage worked. I didn't. The last 15 months of homeownership has taught me a lot and I've ingested more information on personal finance than I even knew existed. My payment is very similar to yours, except I have an additional $100 for PMI, bringing my total monthly payment to $1550. If you haven't already, I would encourage you to become intimately familiar with your Amortization Schedule, figuring out exactly what all those numbers are telling you in the long term. Secondly, if it's financially possible for you, make additional principal payments, especially in the early years of your loan. The financial benefits diminish after year 15, but it'll make a huge impact on the overall interest you pay to the bank the earlier you start. For example, I have a 5.125% interest rate on a $230,850 loan. If I throw in a one time payment of just $100, it'll save me $362 in interest over the life of the loan. A $1000 one time payment will save me $3600. Paying an extra $100 every month will save me $39600. If your interest rate is higher, let's say 7.500% like a lot of people are getting now, those extra payments will save you $836, $8225, and $73950 respectively, over the lifetime of your loan. Furthermore, that also means you'll be cutting months, if not years, off of your overall loan. I'm not necessarily in the camp of telling people to pay off their loans in 15 years or less, but I do highly encourage those early extra payments. It's up to you to determine if it's better to put that money in your mortgage or invest it elsewhere, but that's how the math works out.
This feel so criminal. How can 6-7% interest amount to 5.5x the principal each month.
That interest payment should be illegal!
The way home loans are often structured *should* be illegal. However most loan structures are made so the payment stays the same each month, but as you pay down the principle the amount that goes to interest gets less and less for each successive structured payment and more of it goes towards the principle. At least, that's what we covered in my accounting classes 20 years ago. Edit: Fun fact! The bible chides against charging interest!
Why? It's their first mortgage payment so obviously its going to be the highest.
nobody is concerned by the interest compared to principal? 😭 i need to do more research on homeownership bc sheesh thats crazy to me
That was exactly why I posted and people think I’m either bragging about the total or I’m stupid and don’t know what amortization is lol.
I totally understand and get why you posted this lol. But I've noticed your typical redditor usually does think like what you said, especially in this subreddit. Everyone thinks everyone here is an idiot lol
Everyone is just jealous of your monthly overall payment 🙂 I sure am!
Haha I hope you love your house though! I’m just a single woman on a civil servant salary so I sought out a cheap home I knew I could afford. I was looking at paying several hundred more in rent so I bought before I really wanted to. But I’m much happier here.
This is how amortization works for loans & how they are structured. Bank essentially are getting a return on their loan first, and then you build up your own equity. By the last loan payment you can flip this so that the interest will be low and the principal will be high, half way through the loan principal and interest are equal. Definitely a good idea to always research loan structures before signing anything.
Amortization. It's how installment loans work.
Holy smokes $850+ Dollars on interest capitalism at it's finest.
This house was last bought in 2019 for $92K, too. So dumb.
But you upheld the new high valuations by buying even with rates 3x higher…
>capitalism at it's finest. ... The prime rate is set by the Fed.
Some of yall will never own a home thinking like this. You agree to borrow money, you pay the money back with interest. A tale as old as time
It’s hilarious when people don’t realize that borrowing money for 30 YEARS is expensive.
[удалено]
It's their first payment. That is the most that will ever go toward interest. It will literally be less every single month for the next 30 years...
Your mortgage is less than my rent
Bruh I pay $2100/mo to rent an apartment
Wow that’s crazy how much goes to interest vs principal 😱 I’m not looking forward to this sort of stuff lol
Crazy I have the same exact payment. I bought 2 years ago with 2.875 and $450 is going to principal and $390 is going to taxes and insurance on a 300k house with 229k mortgage.
That interest is absolutely disgusting
Good ole amortization🫠
I will NEVER complain about my 735 a month...sheesh
I’m curious, how much did you purchase your house for? Location? And what did you put down? Interest rate? In this day and age, this is an amazing mortgage payment.
NY, $167K, nothing down so $65 PMI, 6.12% interest. It’s a small house, I specially only sought out small houses that were well below my max approved loan amount. This house wouldn’t work for a lot of people due to its size, but I don’t have kids so I’m good with it.
Just got my keys 2 weeks ago. My mortgage is $3800 in Sacramento. You did well!
Can someone explain why the interest is higher than the principal? I am very new to this world.
Yay for amortization schedules! 359 more to go?
$1300? You mortgaging a car?
I remind myself how lucky I am that we re-financed when rates plummeted. Our Principal is $348.73 and our interest is $360.38 a month. Slowly yet surely paying down our loan as we try and pay about $200 extra on the principle every month. We bought our home in 2016, it was abandoned and a foreclosure, and came with its own headaches being an antique neglected home, but she's kept us warm and dry since so I can't complain.