Fixed Rate Mortgage

Fixed rate mortgage is the most popular type of mortgage, and most home owners choose it because they know the home loan payment will always be the same. What will change is the rate at which you repay your loan or principal amount, vs. the interest. Usually you will start with a low percentage of your monthly payment going toward the principal, while most of it will go to the interest. As time goes by, the ratio of principal / interest repayment will change, with more money going to the principal and lees to the interest. This concept is called loan amortization, and the exact numbers can be seen in the amortization table.

Why most of your mortgage monthly payment goes toward interest, when you originate your home loan?

The reason that majority of you monthly payment goes toward interest, in the beginning of the loan term is so that the lender (bank or mortgage company that loans you the money to buy your home) makes most of their profit in the beginning of the mortgage, rather than 30 years down the road. If you refinance your mortgage let’s say in five years, most of what you paid for you mortgage will have gone to the mortgage company. Your actual loan amount, while it will be less than you borrowed, the difference will not be very significant.

Let’s look at an example. Below is the annual amortization table for a $100,000 loan with a 5% APR (annual percentage rate). This hypothetical home loan was originated in Dec. 2009, and will have been re-payed in Dec. 2039.

As you can see from the amortization table, the principal repayment in the first year (2010) is $1,475.37, while interest paid in the same first year period is $4,966.49. At the end of tenth year of the mortgage term (2020), the principal repayment is $2,429.94, whereas interest paid in the same period went down to $4,011.92.


Mortgage Summary

Loan amount 100000
Term 30
Interest Rate 5
Monthly Payments 536.82
Total Payments $193,255.78
Total Interests $93,255.78

Payment Schedule

Period Payments Interest Principal
12/2010 6,441.86 4,966.49 1,475.37
12/2011 6,441.86 4,891.01 1,550.85
12/2012 6,441.86 4,811.67 1,630.19
12/2013 6,441.86 4,728.26 1,713.60
12/2014 6,441.86 4,640.59 1,801.27
12/2015 6,441.86 4,548.44 1,893.42
12/2016 6,441.86 4,451.57 1,990.29
12/2017 6,441.86 4,349.74 2,092.12
12/2018 6,441.86 4,242.70 2,199.16
12/2019 6,441.86 4,130.19 2,311.67
12/2020 6,441.86 4,011.92 2,429.94
12/2021 6,441.86 3,887.60 2,554.26
12/2022 6,441.86 3,756.92 2,684.94
12/2023 6,441.86 3,619.55 2,822.31
12/2024 6,441.86 3,475.16 2,966.70
12/2025 6,441.86 3,323.37 3,118.49
12/2026 6,441.86 3,163.83 3,278.03
12/2027 6,441.86 2,996.12 3,445.74
12/2028 6,441.86 2,819.83 3,622.03
12/2029 6,441.86 2,634.51 3,807.34
12/2030 6,441.86 2,439.72 4,002.14
12/2031 6,441.86 2,234.97 4,206.89
12/2032 6,441.86 2,019.73 4,422.12
12/2033 6,441.86 1,793.49 4,648.37
12/2034 6,441.86 1,555.67 4,886.19
12/2035 6,441.86 1,305.68 5,136.18
12/2036 6,441.86 1,042.91 5,398.95
12/2037 6,441.86 766.69 5,675.17
12/2038 6,441.86 476.33 5,965.52
12/2039 6,441.86 171.13 6,270.73
Totals: 193,255.78 93,255.78 100,000.00
October 28th, 2010