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If my payments remain the same, why are the first years worth of payment more about paying interest?

by jbearp988 from Lynndyl, Utah. Jul 14th 2020 Reply

Bert Carpenter (BertCarpenter)
#1 ranked lender in Arizona - 2,423 contributions

The answer to your question has to do with how interest is earned by the lender. On a fixed rate loan, your payment is calculated so that your payments remain the same from month to month over the life of the loan. Your loan balance is at its highest amount when you start. The lender earns interest on this amount. Your first payment pays this interest plus a small amount that is applied to your principal balance. The next month, the bank earns a little less interest, leaving more to be applied to your principal balance. Over time, as your balance reduces, the allocation of your payment will reverse, meaning that as your interest portion gets smaller, the amount applied to your principal will begin to exceed the portion applied to interest. I hope this helps. ~ Bert Carpenter, The LoansA2z Team of NEXA Mortgage ~ NMLS 40586 ~ Licensed in Arizona, California, Georgia, Oregon, and Washington. Need help in other states? We got you covered. NEXA Mortgage is licensed in 46 states ~ 480-889-9000

Jul 14th 2020
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