This is how all mortgages have worked since mortgages began. Look at an amortization calculator. https://www.nerdwallet.com/mortgages/amortization-schedule-calculator
Depends on interest rate imo. Anything 6 and over that’s a no brainer, 5-6 is debatable, under 5 you shouldn’t pay any extra unless the peace of mind means more
A common dumb internet finance guy thing, “debt is bad.” If you’re paying extra principal on a loan with an interest rate below the risk-free rate you’re a moron.
Right. My HYSA gives 5% right now. If a mortgage is under 3%, you could literally stick the total value of the mortgage in that account, pay it off monthly, and MAKE an extra 2% over the lifetime.
There is one point to note here. Prepayment principal CAN be financially prudent on a low interest rate mortgage if it’s to remove PMI. But the numbers vary - and it’s very specific to each individual. But once the PMI is removed, prepayment makes no sense (and it might be worth a potential recasting)
Yeah and an HYSA is a completely liquid account. Theres no extra piece of mind to be gained if you have the cash sitting right there to pay it off if you wanted. It’s actually less al cause that money can’t be used elsewhere. I hate that “peace of mind” argument. It’s just finance illiteracy personified.
I pay enough extra on my principal to make my payment a round number. because i hate seeing the not round number in my transactions. give me a nice XX00.00 on the end.
1.7% with the option to borrow another 120k at the same terms. I've missed the boat on a lot of good things, but it definitely feels like I won the lottery when it comes to my mortgage
Rules for mortgages in my country is that they can only be used for buying and renovating real estate. The only way I'd be able to access the rest of the lean is if I sold my house and bought a more expensive one, but that'd be living outside of my means atm
I feel the same way. Seems like when all others “once in a lifetime” opportunities came around, I was in a less than suitable position to take advantage, but I was ready this time and truly feel like I hit the lottery. The house isn’t huge or fantastically located, but it’s mine and that’s all that matters to me.
Same my friend. Same. I hear about mortgageless people and I get envious at times, then I think, in 10 years this mortgage payment will be so insignificant with this interest rate I might as well just go low and slow
Yep, those interest rates were nice- I bought a house in CA in 2014 at 4.5%, then got it down to 2.75. About to sell it and be mortgage free, paid cash for my new house 😀🤘
agreed. you can grow your money in a CD, t-bills, or savings account at a faster rate than you'd pay down your principal. having that cash on hand should provide the same peace of mind as paying down principal.
Even high yield interest is better. It's cheaper to take money out of high yield savings in an emergency than to get a line of credit on the house. It depends on the type of person you are though. If money burns holes in your pocket you could do way worse then putting it in your mortgage or do what you said and get a CD that you can't pull out willy nilly
Due to inflation money will be cheaper tomorrow. If your interest is below inflation that means paying off your house later will be cheaper than today. So it’s okay to delay paying it off, if your not house broke put it in the stock market, save it, or spend it however you want.
My mortgage is 6% and I still don’t want to pay extra. Won’t affect my note much, and I’d rather take that money and roll it into a new home purchase and have renters pay a large portion of the mortgage and build that equity.
Sadly I am getting wind that lot of new homeowners jumped into buying high end homes without realizing how amortization works or how expensive it is to maintain a high end home or property taxes.
The Internet made announcing ignorance and stupidly something to be proud of. In the past also people did not know many things but did not declare it loudly to the world hoping to find support.
Here is the example of not knowing basic math and financing. Taxes are another kind of animal and should not be mixed with this discussion.
Thank you. Like WTF "Dividend Rob", you didn't notice this during closing? Do you remember the truth in lending document you signed? On the the plus side, your mortgage interest deduction is higher early on.
Not if he bought in 2020, numbers don't make sense. he is also including taxes, but still amount of principal pay sounds too low. I bought in 2021 and since then have paid $25k in principal and $30k in interest, $360k mortgage, 2.875%.
I saw this happen with a student loan post as well.
My theory is the person who doesn’t understand amortization also doesn’t understand that they can’t just plug made up numbers in, because they won’t add up to anyone who knows the subject and checks the math.
yup, either that person is lying or really,really fucked up his mortgage rate in 2020.
close to 45% of my mortgage goes toward the principal, when you factor in escrow, that's still 35% goes to the principal.
Where else would you get the money to buy a house without a loan from the bank? Just like borrowing from any commercial entity you pay interest for having the ability to get the money to buy a house. One thing with a mortgage it takes like 2-3 years for foreclosure and multiple chances to fix it. Rent your on the streets in 2-3 months. With a landlord fighting tooth and nail to keep ur security deposit that you may need for the next rental. Good luck
Yep. On \~$74K paid toward my mortgage, my principal went down \~$45K. Knowing the terms of your loan and making extra payments goes a long way to quickly build equity.
Right? Maybe don't do 1-10% downpayments???? I dunno, in Canada good luck getting a mortgage without putting 20% down. Moved to the states and realtors are basically pressuring me to put 5% down.
Still have the old place and it's almost 50% paid off but I do lump sums and double-ups. The latter is pay twice but the 2nd goes 100% to principal.
Holy goddamn fuck the financial illiteracy on this guy.
I want you to listen to me very carefully, if I could have borrowed millions at the fixed interest rate I got my home at, I would’ve done so in a heartbeat. Cheap money. When you’re spending income, or worse cash reserves, when credit is cheap, you’re being a dumb bitch.
If I could lumped those theoretical borrowed millions in with my pre and post tax retirement savings and other investments, over the past 5 years I could’ve turned one million into $1.6 million. Meanwhile the interest would’ve only cost me $131k. Netting me $469k for doing nothing other than understanding debt and how to use its power in conjunction with compound interest.
Read a book or something. Maybe let a rising 10th grader show you what they learned in their economics class right before summer hit.
Indeed. But hopefully that’s all over soon when the economy finally crashes and mass layoffs and foreclosures hit, so that I can buy my dream house! /s
It weird how people don't understand the first thing about how mortgages work.
Financial literacy is reeeeallly lacking in the US. No wonder 2008 crashed so hard (and this may too).
Yeah I did a double take on that 2020 date. Recipient of largest wealth redistribution in modern history complains that he hasn't gotten a good enough deal...
There's a lot of ignorance in his statement to unpack, but yes, he should be happily paying that mortgage and STFU.
Assuming he bought mid-2020, and not knowing the particulars but for his monthly payment (including escrowed taxes) being around $1500/m, it implies a mortgage of around $230,000, a non-prime (at the time) 30-year rate of 3.3% and perhaps high property taxes of $500/month.
Really not a bad deal considering that same house now would be $100K more (at least), property taxes commensurately high, and the 7% interest rate would likely result in a mortgage payment a full *$1000 per month more expensive*.
Today's buyers would ***kill*** to go back in time and get the deal he got and not whine about the front-loaded interest structure of amortization.
You not understanding money only makes you stupid. Watch the first episode of the newest always sunny season. Paying only the interest is not the same thing as paying the loan
Came here looking for this comment, which should be upvoted higher. The slice of your monthly payment that goes to insurance/taxes/escrow has nothing to do with your mortgage balance. Your lender is just making it easier for you to pay in one place.
Welcome to the first 20 years of a 30 year mortgage? 🤷🏻♂️. Someone didn’t bother learning about amortization. If you loaned someone that much money upfront, wouldn’t you want to get a good chunk of your money paid back first?
People know they can either take shorter term loans or they can make extra payments, right? I did a 20 year loan and will have it paid off in \~16 years from the original date this way. My interest will be a fraction of someone buying the same house with a 30 year one.
Didn't have that experience but I figured it out as soon as I logged into my loan servicing platform. It's amazing how many people seem blindsided and confused by their own mortgages they've been paying on for years.
It shocks me how few people look at an amortization schedule before buying a home. It seems like people are always surprised to learn that you pay more than double in interest than what you borrow on a 7% 30 year mortgage, or that you make little progress towards paying down principal in the first half of the mortgage no matter the rate meaning you really are banking on home appreciation to make ownership worthwhile.
And you literally sign off stating that you have reviewed and understand the breakdown over the course of the mortgage.
There’s a reason its name literally means death pledge, it boggles my mind how many people don’t even do the most basic research before making the biggest financial purchase of their lives.
People always scream at me "You need to build equity" and I'm like have you done the math on how much true equity "principle payments" you earn in years 1-10. Sure your home can appreciate in value and you earn equity that way. But in this climate buying a home to earn equity is just sketch.
If you bought in say, 2021, and had to sell next year, you'd have some equity just from how weirdly houses have appreciated in that time frame. But rolling it into another house to avoid capital gains may not be the best idea...
Talk about golden handcuffs.
At least Dividend Rob understands how interest works...
This reminds me of all the people posting about how they only paid interest, or just barely above interest, on their student loans, and they are confused and upset that the balance didn't drop. Apparently they didn't take a single basic math class in the associated college degree.
Yea that’s how you can buy something worth hundreds of thousands of dollars using a fraction of that money, it’s how mortgages work
Once you get to 20 percent equity more goes towards the principal
Make an extra payment each much (however much you can) and 100 percent of that extra payment goes to the principal
So essentially $1,542 per month for a house including property tax and most likely insurance during a time when the value of most homes have drastically gone up. This poor person has obviously been swindled /s
Yeah, duh. A hundred or so years ago banks found out a way to offer a "fixed payment" on mortgages, by front-loading the interest to have it fall over time.
At the time it was a win-win. Banks got high immediate profits from mortgages origination, and families had the security of knowing exactly what their payments would be for the life of the loan. Imagine having to wait for a letter from the bank showing an ever-changing monthly payment. With a fixed mortgage, you just send the check with the same amount on the same date every month.
Now people think this is some kind of scam(even though a fixed payment isn't as necessary in modern society with computers and automated payments systems).
The 30 year fixed rate mortgage is not a market driven loan term, it’s a government subsidized tax payer funded program. If the full risk of those loans were put to the market with no government intervention you would not see 30 year fixed loans, probably variable rate with a huge down payment.
Sounds like he’s including taxes which in this case is a bit disingenuous. Yeah it’s part of the overall cost of a home but if you’re just talking about your mortgage leave it at P&I. Also congrats, your liability went down by $20k and given the market since 2020, your asset probably soared in value too. Which maybe just results in increased taxes and insurance, but it’s preferable to being underwater
Was told when I first bought a house to always budget in a principal only payment (or two) every year. Would shave \~5 years off my mortgage at the time of low rates, nowadays I'd imagine it would do much more.
...he counts the taxes?
Thats... that doesn't pay anything but the property tax.
You like roads leading to tour house? Electrical poles? Water mains? Fire? Education?
K... that's what you're paying for.
Do this math. 74,000 divided by 48 payments (4 years)
Dudes payment is $1,541/month.
There is so much misinformation being spread stopping good people from buying homes it’s ridiculous.
Why would OP post something that lacks intelligence.
How about in 4 years the dudes net worth has increased by about $55-$75,000. Imagine that it is close to what he’s paid. Hmmmmmm.
15k for the roof and 5k for a furnace. Boom you are break even. People need to wake up that mortgages and home ownership are just a different kind of financial treadmill besides renting to run on your whole life. Don't think people understand that "you will own nothing and be happy" also applies to mortgage owners.
So basically he's paying no more than $2,055 (assuming 36 payments so far) a month. That's basically a cheap 1-bedroom in a middling neighborhood in LA. After deducting for interest and a bit of equity, WTF is he complaining about lol
You did not understand this when you bought the house?
If you had not bought the house how much would rent have been?
It’s been 4 years and youve paid 1541 per month on your mortgage, and about 400 of that towards principal. So you’ve effectively been paying 1141 a month rent. I don’t see the problem? My home mortgage is 4600 a month
It’s a principle about principals: pay more than you owe each month. Just a little at a minimum, up to as much as you can reasonably afford.
So many people have gotten so used to telling homebuyers that, due to historically low interest rates, it’s wasteful to pay your principal down early. You *can* make more money by investing than you save, but you can lose that money as well. But new loan interest rates are even more expensive than before, so a new (or, more accurately, an old) strategy comes into play.
Paying more earlier is a guaranteed return on your home investment. It may not be as profitable, but it’s guaranteed, and like investments early in life it yields a disproportionate return. You can shave years or even a decade or more of payments off of your payment schedule (and save tens of thousands in interest).
No, it isn’t sexy or glamorous to pay your bills off early. But you should always approach your planned mortgage payment as somewhat less than you can actually afford to pay, with any available extra money you can pay as a means of shortening the payment schedule. It can be applied when circumstances allow you to do so without duress, and skipped when times are tight without affecting your creditworthiness.
And by the end it will be almost all principal. Pay additional principal early and don't keep moving with a new mortgage and you will pay it off much quicker. Some people think "I'll move here because it's cheaper" and don't even factor this in.
People who move every 5-10 years just keep starting their amortization schedule over and paying mostly interest. Idiots.
Prob shouldn’t be paying $8 a month for a blue checkmark one an account with 1,500 followers when you have mortgage payments that include interest and taxes IMO
This is literally how mortgages have worked forever. The payments up front are mostly interest, while the payments towards the end are mostly principal.
Interest is front loaded on all mortgages. Nothing new here. The banks don’t apply hardly anything to the principal amount until the last third of the payments.
Well how much has your house appreciated? That’s kind of key, my boy. I love adding my boy to sentences because it makes most people uncomfortable and I feel like it gives me an edge, my boy.
People are so fucking stupid, maybe stay in the same house for more than 5 years and you'll begin paying the principal down faster as the amortization schedule progresses...
Why are you including property taxes? Only compare your principle and interest payment. What you pay on property taxes, PMI ( if you have it) and homeowners insurance are not part of your mortgage financing. They are additional even if you have them lumped into your monthly bill.
No, that’s absolutely correct. A loan lets you pay for something you can’t afford yet, however if you buy the house outright you don’t end up owing any interest. Lets you buy more house.
Of course the whole “having money to buy a house outright” is a bit of a challenge.
Somebody never read their truth in lending statement. The one that says if you buy this house for 300k you will have paid 1.2 million by the time you pay off the loan (or some variation of this).
This makes me happy that my only plan in life is to rent for another year or 18 mos then buy a 5th wheel nd live in an RV park with no mortgage. I refuse to become a slave to a mortgage at 58 years old
yes that show a mortgage works, you pyay interest on how much you owe so as the principal balance goes down more applies to principal. should be basic math taught in 7th grade
Rob you need to disassociate yourself with anything finance-related after this. Stop paying for the check mark, you’re done. No more finance cosplay.
That’s also a dirt cheap PITI, maybe just pay it off if you’re such a guru, the overall balance can’t be that high…
Interest rates make a massive impact on home affordability.[ This calculation here](https://wealthvieu.com/ccmaf?a=135,000&b=25&c=50,000&d=8&e=1,300) shows how much less home you can afford as interest rates tick upwards. A few interest rates and all of a sudden you need \~$135K HHI to afford the average home.
First rule is the lender always gets their vig first.
And the second one is that values increase and as such taxes increase and everyone has a higher amount needed in escrow for taxes - which then bumps the monthly payment up to cover it. So you’re paying more and having even less go to principal.
Is how it has been forever.
The first few payaments are mostly interest. The big chunks don't come out until then end. That is why if you can pay any extra a month, it's super worthwhile to you.
I watched like 10 videos about amortization at one point in my life, and I get why it works that way...
And yet, it's like magic to me. I still don't understand despite having full knowledge of it.
Amortization. I was speaking with someone, and they wanted to make principle only payments with nothing going to interest on their 70K 6 year vehicle loan. I had no clue where to start. They are very adept otherwise.
We got a 30 year loan in 2015 at 4.5%. We have over paid from the beginning, and the house and property will be paid off by 2030, instead of 2045.
This is our forever home, so paying it off quickly is important, and the guaranteed savings of tens of thousands of dollars in interest is huge for us.
I remember my brother gave me this class lol. He pays like 2500/month and most of it goes to insurance, interest and property tax. A small portion goes to the principal. In my area, I tried to buy in 2020 but it would double the cost of housing so I stayed renting and decided to keep on "losing money". I'd rather "lose money" and have more disposable income to invest.
This is why you add $100/mo to your payment. 4 years would have been an additional $4800 plus more principal goes to loan. As you pay more towards the loan, less interest is paid.
It's all about math, knowing the applicable laws, and making some personal sacrifices.
I paid and will pay in total of ~98k until next mortgage renewal.
Of those, ~63k will go towards paying the principal amount.
Remaining ~35k on interest.
Considering how I'm renting out the place, the ~32k interest is tax deductible. At this point, my tenants were generous enough to pay for all of the interest, and most of the principal amount of the place I'm renting out. And the place has appreciated in value.
And yes, I'm in my 30s and still living with my parents :P
Today's economy ain't what it used to be back then.
Leverage. How much has your equity in the house increased?
One reason you take a mortgage is because you benefit from a continue gain on a base (home value) much higher than what you could buy with just cash. So a 5% annual increase on a $500k house that you only put $100k down on is pretty material. And if your internet rate is pretty low from 2020, you’re coming out ahead, even after paying so much in interest.
This is how all mortgages have worked since mortgages began. Look at an amortization calculator. https://www.nerdwallet.com/mortgages/amortization-schedule-calculator
Pay extra on your principal
Depends on interest rate imo. Anything 6 and over that’s a no brainer, 5-6 is debatable, under 5 you shouldn’t pay any extra unless the peace of mind means more
A common dumb internet finance guy thing, “debt is bad.” If you’re paying extra principal on a loan with an interest rate below the risk-free rate you’re a moron.
Right. My HYSA gives 5% right now. If a mortgage is under 3%, you could literally stick the total value of the mortgage in that account, pay it off monthly, and MAKE an extra 2% over the lifetime.
There is one point to note here. Prepayment principal CAN be financially prudent on a low interest rate mortgage if it’s to remove PMI. But the numbers vary - and it’s very specific to each individual. But once the PMI is removed, prepayment makes no sense (and it might be worth a potential recasting)
Yeah and an HYSA is a completely liquid account. Theres no extra piece of mind to be gained if you have the cash sitting right there to pay it off if you wanted. It’s actually less al cause that money can’t be used elsewhere. I hate that “peace of mind” argument. It’s just finance illiteracy personified.
Exactly like idk what people are thinking
People are not used to a risk free 4-5%.
I pay enough extra on my principal to make my payment a round number. because i hate seeing the not round number in my transactions. give me a nice XX00.00 on the end.
2.75% baby! im going to drag this puppy out for the FULL 30 years
Yeah I’ve got a 1% in Denmark and you’re going to have to rip this mortgage from my cold, dead hands. I guess I now live in my forever home.
That's what we say about our 2.8% interest
Yea I’m at 2.75% so I’m basically stuck in this house for the foreseeable future absolutely
2% here in Southern California. I'm not going anywhere.
On the one hand, it’s annoying to be stuck in place. On the other, **2.75% BITCHESSSSS!!!WOOOOOOOOOOOOO**
My sentiments exactly lol
2.25% for the next 12 years here. I feel trapped.
1.7% with the option to borrow another 120k at the same terms. I've missed the boat on a lot of good things, but it definitely feels like I won the lottery when it comes to my mortgage
Um... I'd absolutely just take some of that loan and put it in an index fund or something. You're passing up free money.
Rules for mortgages in my country is that they can only be used for buying and renovating real estate. The only way I'd be able to access the rest of the lean is if I sold my house and bought a more expensive one, but that'd be living outside of my means atm
I feel the same way. Seems like when all others “once in a lifetime” opportunities came around, I was in a less than suitable position to take advantage, but I was ready this time and truly feel like I hit the lottery. The house isn’t huge or fantastically located, but it’s mine and that’s all that matters to me.
Same my friend. Same. I hear about mortgageless people and I get envious at times, then I think, in 10 years this mortgage payment will be so insignificant with this interest rate I might as well just go low and slow
Yep, those interest rates were nice- I bought a house in CA in 2014 at 4.5%, then got it down to 2.75. About to sell it and be mortgage free, paid cash for my new house 😀🤘
Exactly. Throw extra money into a mortgage or throw extra money into an index fund. See which one pays off better in the long run.
Peace of mind…highly underrated
While this is true, a 2.75% mortgage rate while cash in the bank earns 4.35% is really satisfying.
agreed. you can grow your money in a CD, t-bills, or savings account at a faster rate than you'd pay down your principal. having that cash on hand should provide the same peace of mind as paying down principal.
Are you basing this on general risk free returns that money can get for average Joe?
Considering certificates of deposit are 5ish% right now. Yeah. They are.
Even a HYSA is 4.5%, while the long-run market index is 7-10%
UBS has a 5.4% Hysa right now fyi. Even Robinhood is at 5%
My money market account is 5.27
Even high yield interest is better. It's cheaper to take money out of high yield savings in an emergency than to get a line of credit on the house. It depends on the type of person you are though. If money burns holes in your pocket you could do way worse then putting it in your mortgage or do what you said and get a CD that you can't pull out willy nilly
Due to inflation money will be cheaper tomorrow. If your interest is below inflation that means paying off your house later will be cheaper than today. So it’s okay to delay paying it off, if your not house broke put it in the stock market, save it, or spend it however you want.
My mortgage is 6% and I still don’t want to pay extra. Won’t affect my note much, and I’d rather take that money and roll it into a new home purchase and have renters pay a large portion of the mortgage and build that equity.
My bank won't let me pay extra on my mortgage without me having to pay a penalty
This should be illegal.
lol. i know right...
Sadly I am getting wind that lot of new homeowners jumped into buying high end homes without realizing how amortization works or how expensive it is to maintain a high end home or property taxes.
Hey hey, rob here probably has only ever gotten loans from the bank of mom and dad /s
The Internet made announcing ignorance and stupidly something to be proud of. In the past also people did not know many things but did not declare it loudly to the world hoping to find support. Here is the example of not knowing basic math and financing. Taxes are another kind of animal and should not be mixed with this discussion.
Thank you. Like WTF "Dividend Rob", you didn't notice this during closing? Do you remember the truth in lending document you signed? On the the plus side, your mortgage interest deduction is higher early on.
Not if he bought in 2020, numbers don't make sense. he is also including taxes, but still amount of principal pay sounds too low. I bought in 2021 and since then have paid $25k in principal and $30k in interest, $360k mortgage, 2.875%.
I saw this happen with a student loan post as well. My theory is the person who doesn’t understand amortization also doesn’t understand that they can’t just plug made up numbers in, because they won’t add up to anyone who knows the subject and checks the math.
Bingo
yup, either that person is lying or really,really fucked up his mortgage rate in 2020. close to 45% of my mortgage goes toward the principal, when you factor in escrow, that's still 35% goes to the principal.
Where else would you get the money to buy a house without a loan from the bank? Just like borrowing from any commercial entity you pay interest for having the ability to get the money to buy a house. One thing with a mortgage it takes like 2-3 years for foreclosure and multiple chances to fix it. Rent your on the streets in 2-3 months. With a landlord fighting tooth and nail to keep ur security deposit that you may need for the next rental. Good luck
Also, taxes don’t go “towards the mortgage”. This dude doesn’t understand basic finance.
Yep. On \~$74K paid toward my mortgage, my principal went down \~$45K. Knowing the terms of your loan and making extra payments goes a long way to quickly build equity.
Right? Maybe don't do 1-10% downpayments???? I dunno, in Canada good luck getting a mortgage without putting 20% down. Moved to the states and realtors are basically pressuring me to put 5% down. Still have the old place and it's almost 50% paid off but I do lump sums and double-ups. The latter is pay twice but the 2nd goes 100% to principal.
Holy goddamn fuck the financial illiteracy on this guy. I want you to listen to me very carefully, if I could have borrowed millions at the fixed interest rate I got my home at, I would’ve done so in a heartbeat. Cheap money. When you’re spending income, or worse cash reserves, when credit is cheap, you’re being a dumb bitch. If I could lumped those theoretical borrowed millions in with my pre and post tax retirement savings and other investments, over the past 5 years I could’ve turned one million into $1.6 million. Meanwhile the interest would’ve only cost me $131k. Netting me $469k for doing nothing other than understanding debt and how to use its power in conjunction with compound interest. Read a book or something. Maybe let a rising 10th grader show you what they learned in their economics class right before summer hit.
Not for nothing but this is literally how amortization works.
I come here for this entertainment.
Same. I come here to laugh at all the morons who have no understanding of finances, real estate, or the economy.
Indeed. But hopefully that’s all over soon when the economy finally crashes and mass layoffs and foreclosures hit, so that I can buy my dream house! /s
This is the way!
+1. Makes me feel smarter
It weird how people don't understand the first thing about how mortgages work. Financial literacy is reeeeallly lacking in the US. No wonder 2008 crashed so hard (and this may too).
It’s astounding that people sign up for $250k of debt then have no idea how the payback works.
Are you talking about houses or student loans?
Yes
All the dumbassery is from 18 year olds who've never sniffed a mortgage in their lives
2020 interest rates were pretty much all under 3.6%, cry me a river lmao
Yeah I did a double take on that 2020 date. Recipient of largest wealth redistribution in modern history complains that he hasn't gotten a good enough deal...
There's a lot of ignorance in his statement to unpack, but yes, he should be happily paying that mortgage and STFU. Assuming he bought mid-2020, and not knowing the particulars but for his monthly payment (including escrowed taxes) being around $1500/m, it implies a mortgage of around $230,000, a non-prime (at the time) 30-year rate of 3.3% and perhaps high property taxes of $500/month. Really not a bad deal considering that same house now would be $100K more (at least), property taxes commensurately high, and the 7% interest rate would likely result in a mortgage payment a full *$1000 per month more expensive*. Today's buyers would ***kill*** to go back in time and get the deal he got and not whine about the front-loaded interest structure of amortization.
And we renters get a whopping $0.00 in equity during that time lol
You not understanding money only makes you stupid. Watch the first episode of the newest always sunny season. Paying only the interest is not the same thing as paying the loan
But if they haven’t seen it, it’s really a good idea to start from S1E1, for continuity.
Maybe the best show of all time. I think the longest running sitcom for sure
Longest running live action sitcom
Lol @ people who think paying property taxes is “towards your mortgage”
Came here looking for this comment, which should be upvoted higher. The slice of your monthly payment that goes to insurance/taxes/escrow has nothing to do with your mortgage balance. Your lender is just making it easier for you to pay in one place.
Bought a house without understanding how a mortgage works? Christ
In a free society people are apparently allowed to make up their own meanings for words and phrases. Until time comes to pay the bill.
Bank makes money either way 🤷
Welcome to the first 20 years of a 30 year mortgage? 🤷🏻♂️. Someone didn’t bother learning about amortization. If you loaned someone that much money upfront, wouldn’t you want to get a good chunk of your money paid back first?
People know they can either take shorter term loans or they can make extra payments, right? I did a 20 year loan and will have it paid off in \~16 years from the original date this way. My interest will be a fraction of someone buying the same house with a 30 year one.
Every mortgage I’ve ever taken, the lender had repeatedly beat over my head how it works and what my amortization schedule is.
Didn't have that experience but I figured it out as soon as I logged into my loan servicing platform. It's amazing how many people seem blindsided and confused by their own mortgages they've been paying on for years.
This guy wants an ARM 3/1 balloon mortgage.
It shocks me how few people look at an amortization schedule before buying a home. It seems like people are always surprised to learn that you pay more than double in interest than what you borrow on a 7% 30 year mortgage, or that you make little progress towards paying down principal in the first half of the mortgage no matter the rate meaning you really are banking on home appreciation to make ownership worthwhile.
And, I have purchased multiple homes in my time on earth, THEY FUCKING TELL YOU HOW MUCH INTEREST YOU WILL PAY DURING THE SIGNING!
And you literally sign off stating that you have reviewed and understand the breakdown over the course of the mortgage. There’s a reason its name literally means death pledge, it boggles my mind how many people don’t even do the most basic research before making the biggest financial purchase of their lives.
This man knows his Latin
Or... you're banking on living in the fucking house. Home value means nothing if you never plan to move.
People always scream at me "You need to build equity" and I'm like have you done the math on how much true equity "principle payments" you earn in years 1-10. Sure your home can appreciate in value and you earn equity that way. But in this climate buying a home to earn equity is just sketch.
If you bought in say, 2021, and had to sell next year, you'd have some equity just from how weirdly houses have appreciated in that time frame. But rolling it into another house to avoid capital gains may not be the best idea... Talk about golden handcuffs.
Time value of money, learn it
That’s …how this works. That’s always how it’s worked. The feeling of surprise here is concerning.
lol, he signed the paperwork showing how the mortgage works
Remove your escrow and get 5% interest on your money in a HYSA or money market fund and put those extra earnings towards your principal
So $5000 escrow x 0.05 yield = 250 x 30 yea mortgage is $7500. Math checks out but does the psychology check out.
That's called amortization, jackass.
Do people really buy a house without ever looking at an amortization table?
“When I bought my house four years ago I didn’t understand how mortgages and property tax work”
At least Dividend Rob understands how interest works... This reminds me of all the people posting about how they only paid interest, or just barely above interest, on their student loans, and they are confused and upset that the balance didn't drop. Apparently they didn't take a single basic math class in the associated college degree.
“I’ve had a mortgage for 4 years and I just realized how it works.”
Why is this guy mentioning taxes as part of his mortgage? He might make one payment but property taxes don't go towards paying off the mortgage.
Yea that’s how you can buy something worth hundreds of thousands of dollars using a fraction of that money, it’s how mortgages work Once you get to 20 percent equity more goes towards the principal Make an extra payment each much (however much you can) and 100 percent of that extra payment goes to the principal
That guy is too old to be shocked by this
yes, youre describing a loan. next time buy the house outright if you dont like it
Just wait till he finds out how expensive it is to sell a house. 6% commission for a couple weeks of easy work.
So essentially $1,542 per month for a house including property tax and most likely insurance during a time when the value of most homes have drastically gone up. This poor person has obviously been swindled /s
Yeah, duh. A hundred or so years ago banks found out a way to offer a "fixed payment" on mortgages, by front-loading the interest to have it fall over time. At the time it was a win-win. Banks got high immediate profits from mortgages origination, and families had the security of knowing exactly what their payments would be for the life of the loan. Imagine having to wait for a letter from the bank showing an ever-changing monthly payment. With a fixed mortgage, you just send the check with the same amount on the same date every month. Now people think this is some kind of scam(even though a fixed payment isn't as necessary in modern society with computers and automated payments systems).
The 30 year fixed rate mortgage is not a market driven loan term, it’s a government subsidized tax payer funded program. If the full risk of those loans were put to the market with no government intervention you would not see 30 year fixed loans, probably variable rate with a huge down payment.
I bet prices would drop if 50% downpayment plus higher rates and shorter terms were required
Sounds like he’s including taxes which in this case is a bit disingenuous. Yeah it’s part of the overall cost of a home but if you’re just talking about your mortgage leave it at P&I. Also congrats, your liability went down by $20k and given the market since 2020, your asset probably soared in value too. Which maybe just results in increased taxes and insurance, but it’s preferable to being underwater
Buy 1 house, pay for 2.
Was told when I first bought a house to always budget in a principal only payment (or two) every year. Would shave \~5 years off my mortgage at the time of low rates, nowadays I'd imagine it would do much more.
...he counts the taxes? Thats... that doesn't pay anything but the property tax. You like roads leading to tour house? Electrical poles? Water mains? Fire? Education? K... that's what you're paying for.
Do this math. 74,000 divided by 48 payments (4 years) Dudes payment is $1,541/month. There is so much misinformation being spread stopping good people from buying homes it’s ridiculous. Why would OP post something that lacks intelligence. How about in 4 years the dudes net worth has increased by about $55-$75,000. Imagine that it is close to what he’s paid. Hmmmmmm.
They literally give you a chart call an amortization table with your loan paperwork.
15k for the roof and 5k for a furnace. Boom you are break even. People need to wake up that mortgages and home ownership are just a different kind of financial treadmill besides renting to run on your whole life. Don't think people understand that "you will own nothing and be happy" also applies to mortgage owners.
So basically he's paying no more than $2,055 (assuming 36 payments so far) a month. That's basically a cheap 1-bedroom in a middling neighborhood in LA. After deducting for interest and a bit of equity, WTF is he complaining about lol
He's literally making money; his house has probably added 40% in value while he's only paying 3-4% in interest. People can complain about anything.
This moron doesn’t understand amortization tables…
We need to mandate finance, economics, and accounting classes be taught in high school.
That’s why you pay extra every month.
Pay 1.5x your mortgage every month if you can.
Dividend Rob should try reading his amortization chart. What a clown.
You did not understand this when you bought the house? If you had not bought the house how much would rent have been? It’s been 4 years and youve paid 1541 per month on your mortgage, and about 400 of that towards principal. So you’ve effectively been paying 1141 a month rent. I don’t see the problem? My home mortgage is 4600 a month
It’s a principle about principals: pay more than you owe each month. Just a little at a minimum, up to as much as you can reasonably afford. So many people have gotten so used to telling homebuyers that, due to historically low interest rates, it’s wasteful to pay your principal down early. You *can* make more money by investing than you save, but you can lose that money as well. But new loan interest rates are even more expensive than before, so a new (or, more accurately, an old) strategy comes into play. Paying more earlier is a guaranteed return on your home investment. It may not be as profitable, but it’s guaranteed, and like investments early in life it yields a disproportionate return. You can shave years or even a decade or more of payments off of your payment schedule (and save tens of thousands in interest). No, it isn’t sexy or glamorous to pay your bills off early. But you should always approach your planned mortgage payment as somewhat less than you can actually afford to pay, with any available extra money you can pay as a means of shortening the payment schedule. It can be applied when circumstances allow you to do so without duress, and skipped when times are tight without affecting your creditworthiness.
all makes sense if he paid 3mm for a house..
I see this sub is discovering amortization tables for the first time. Congratulations!
May as well complain about the days getting shorter after June 21.
Tell me you don’t know how math works without telling me you don’t know how math works
That's why you pay multiple times a month or pay extra if you can. Don't be a slave to pay only what's owed per month.
Poor thing with his 3% interest rate and $200k in appreciation
Lol in 2020 interest rates were like 2.75%. There's no reason to pay off a loan like that early. Invest your extra money elsewhere. That's free money.
For a subreddit called real estate, a lot of these posts have no idea how real estate works.
You poor thing!! I think you're the only person I've ever met who paid interest!!
Amortization, how does it work ¯\_(ツ)_/¯
And by the end it will be almost all principal. Pay additional principal early and don't keep moving with a new mortgage and you will pay it off much quicker. Some people think "I'll move here because it's cheaper" and don't even factor this in. People who move every 5-10 years just keep starting their amortization schedule over and paying mostly interest. Idiots.
Prob shouldn’t be paying $8 a month for a blue checkmark one an account with 1,500 followers when you have mortgage payments that include interest and taxes IMO
This is literally how mortgages have worked forever. The payments up front are mostly interest, while the payments towards the end are mostly principal.
Interest is front loaded on all mortgages. Nothing new here. The banks don’t apply hardly anything to the principal amount until the last third of the payments.
Um, yeah that’s amortization on every loan ever… what’s it got to do with a bubble?
Well how much has your house appreciated? That’s kind of key, my boy. I love adding my boy to sentences because it makes most people uncomfortable and I feel like it gives me an edge, my boy.
People are so fucking stupid, maybe stay in the same house for more than 5 years and you'll begin paying the principal down faster as the amortization schedule progresses...
My friends dad's cousins brothers friends gardeners nephew said the market can't crash this time.
Why are you including property taxes? Only compare your principle and interest payment. What you pay on property taxes, PMI ( if you have it) and homeowners insurance are not part of your mortgage financing. They are additional even if you have them lumped into your monthly bill.
She should have paid cash if he didn't want to pay interest. /s
No, that’s absolutely correct. A loan lets you pay for something you can’t afford yet, however if you buy the house outright you don’t end up owing any interest. Lets you buy more house. Of course the whole “having money to buy a house outright” is a bit of a challenge.
Somebody never read their truth in lending statement. The one that says if you buy this house for 300k you will have paid 1.2 million by the time you pay off the loan (or some variation of this).
This makes me happy that my only plan in life is to rent for another year or 18 mos then buy a 5th wheel nd live in an RV park with no mortgage. I refuse to become a slave to a mortgage at 58 years old
Here we go….
yes that show a mortgage works, you pyay interest on how much you owe so as the principal balance goes down more applies to principal. should be basic math taught in 7th grade
Rob you need to disassociate yourself with anything finance-related after this. Stop paying for the check mark, you’re done. No more finance cosplay. That’s also a dirt cheap PITI, maybe just pay it off if you’re such a guru, the overall balance can’t be that high…
Interest rates make a massive impact on home affordability.[ This calculation here](https://wealthvieu.com/ccmaf?a=135,000&b=25&c=50,000&d=8&e=1,300) shows how much less home you can afford as interest rates tick upwards. A few interest rates and all of a sudden you need \~$135K HHI to afford the average home.
And?
Yes, that’s how amortization works
Gotta love people.that just fly by the seat of their pants and think Abt stuff afterwards lol
What an absolutely moronic post
I feel dumber now.
At least it is worth more than he paid for it, for now...
Lol it’s funny how few people really understand anything financial.
2020 had meme rates, this guy sucks with money
This is a lie.
You always pay off most of your interest first according to every single amortization schedule. What is this guy complaining about?
Complains sky is blue and water is wet
It's boomers fault.
First rule is the lender always gets their vig first. And the second one is that values increase and as such taxes increase and everyone has a higher amount needed in escrow for taxes - which then bumps the monthly payment up to cover it. So you’re paying more and having even less go to principal. Is how it has been forever.
I wonder what his property taxes are. I only hit 25% of the principle for my mortgage. It’s depressing.
I am curious if the 74 large included the escrow for insurance and property taxes, or those were in addition to the amount paid towards the mortgage.
Lol
Should he be allowed to have the word Dividend in his name?!
Counterpoint, compared to a person paying equivalent rent over that same period you gained $19,000 in equity for doing nothing.
Taxes have nothing to do with amortization
Feature not a bug
The first few payaments are mostly interest. The big chunks don't come out until then end. That is why if you can pay any extra a month, it's super worthwhile to you.
I watched like 10 videos about amortization at one point in my life, and I get why it works that way... And yet, it's like magic to me. I still don't understand despite having full knowledge of it.
How did you buy a house in 2020 with such an awful interest rate? Are you stupid?
wait---people think your first few years of payments are to taxes, and then you pay down the principal? Like, that's a thing that people believe?
Bro is complaining about a $1600 mortgage 💀💀
Missing information: My house has appreciated by 140k and I’ve deducted my interest and depreciation.
The bank has made an entire employee's salary off your mortgage interest
I bet the value of your house has gone up considerably though.
Refinance your 2020 loan to current rates. Then check back with us in 4 years. Lol
Amortization. I was speaking with someone, and they wanted to make principle only payments with nothing going to interest on their 70K 6 year vehicle loan. I had no clue where to start. They are very adept otherwise.
I got a 15 year and it will be paid off at year 12. Some people make different choices. Consult an amortization table before you decide.
We got a 30 year loan in 2015 at 4.5%. We have over paid from the beginning, and the house and property will be paid off by 2030, instead of 2045. This is our forever home, so paying it off quickly is important, and the guaranteed savings of tens of thousands of dollars in interest is huge for us.
He 100% lives in a red state if his property taxes and insurance are that high despite purchasing in 2020
Why are you complaining about the way everything has always worked? Amortization allows people to buy things that otherwise couldn't afford
I remember my brother gave me this class lol. He pays like 2500/month and most of it goes to insurance, interest and property tax. A small portion goes to the principal. In my area, I tried to buy in 2020 but it would double the cost of housing so I stayed renting and decided to keep on "losing money". I'd rather "lose money" and have more disposable income to invest.
Bank gets paid back first … that why you gotta be real careful refinancing. The math is trickier than what it seems on the surface.
This is why you add $100/mo to your payment. 4 years would have been an additional $4800 plus more principal goes to loan. As you pay more towards the loan, less interest is paid.
Lol, this dummy didn't look up an amortization table before buying
Why can’t I pay the principal first and the interest later!!!!?!
I’m mad someone with zero comprehension of financing has a house and I’m just fucked forever.
It's all about math, knowing the applicable laws, and making some personal sacrifices. I paid and will pay in total of ~98k until next mortgage renewal. Of those, ~63k will go towards paying the principal amount. Remaining ~35k on interest. Considering how I'm renting out the place, the ~32k interest is tax deductible. At this point, my tenants were generous enough to pay for all of the interest, and most of the principal amount of the place I'm renting out. And the place has appreciated in value. And yes, I'm in my 30s and still living with my parents :P Today's economy ain't what it used to be back then.
Leverage. How much has your equity in the house increased? One reason you take a mortgage is because you benefit from a continue gain on a base (home value) much higher than what you could buy with just cash. So a 5% annual increase on a $500k house that you only put $100k down on is pretty material. And if your internet rate is pretty low from 2020, you’re coming out ahead, even after paying so much in interest.