if i had a morgtage at 7% interest. and the total monthly payments for the first year equalled $100..rd on pls

Question

i would end up paying the bank $7? and the other $93 would go to paying off my morgtage?

right? or does it work differently than that?

Answer 1

No, 7% means you get charged 7% on your balance each year. Yes during the first years only about 10% of your payment if applied towards principle. Get with your bank and get an amortization schedule which would tell you exactly how much of each payment gets applied where. E-mail me, I have an excel file if you want one.

Answer 2

That's close, but probably not the exact figure. Simple interest works like this:

Say you borrow $100 at 6% per year interest. Each month you'll make a payment of $9. Each month, the bank will compute the interest owed by multiplying the interest rate by the unpaid balance, and then dividing by 12 (since the rate is 6% per year, not per month). The first month, the interest will be 50 cents. They subract that from the payment amount, and take whatever is left off the amount owed. So after 1 month, you still owe the bank $91.50.

Do this calculation once a month until the loan is paid for, and add up the interest paid each month to get the total. Oh, and watch out for the last payment, because it's usually different than the rest of the payments.

Because the amount owed changes every month, the interest paid never comes out to exactly the same as what you gave as an example. But it's usually close.

If you can program a spreadsheet, it's easy to show this that way, too.

Answer 3

Simplist loan explanation: You paid the bank $107. $100 original amount borrowed + 7% interest. n x 1.07.

If you have a mortgage loan you have the option of making extra principal payments every month or once per year.

So an amortized loan is for one specific amount that is to be paid off by a certain date, usually in equal monthly installments. Your car loan and home loan fit that definition. Your credit card account doesn't because it's a revolving loan with no fixed payoff date.

A part of the payment goes toward the interest cost and the remainder of the payment goes toward the principal amount -- the amount borrowed. Interest is computed on the current amount owed, and thus will become progressively smaller as the ending balance of the loan reduces. This is referred to as amortization.
If you've ever had a mortgage, you'll know that you seem to pay a lot toward interest and not much toward the principal balance for the first several years of your loan. This isn't a complex financial scheme dreamed up by gray-suited bankers in an underground conference room, but rather simple mathematics.

Take a mortgage loan for $100,000 at 6.5 percent for 30 years. The monthly principal and interest payment is $632.07. For the first month, you owe interest for $100,000, which equals $541.67. The remainder of the payment, $90.40, goes toward principal. In other words, your debt is reduced by $90.40.

Next month, you only owe interest on $99,909.60, so $541.18 goes to interest and $90.89 goes to principal. Month after month, your interest portion will decrease a bit and your principal reduction will increase. This process continues until your 360th payment contributes $3.41 to interest and $628.66 to principal.

You can see how this works by working with the above Amortization Schedule Calculator, which lets you type in any mortgage amount, interest rate and term, or length of loan.

The amortization calculator gives you the option of looking at an amortization table, also known as an amortization schedule. This table tells how much interest and how much principal is included in each monthly payment, from the first to the last.

In the above example, you'll be delighted to see that after 256 payments, you've paid off about half of your loan. That's 21 years and four months. You pay off the other half of the principal in the remaining eight years and eight months.

Now, if the loan above amortized for 15 years instead of 30 years, the monthly principal and interest would cost $871.11.

In the first month, you still would pay $541.67 in interest because the amount of the loan is the same and the interest rate is the same. But you would pay $329.44 in principal with that first payment because you're paying off the loan quicker

Answer 4

You're not even in the ball park.

The variables you need are.

Number of Payments for the Loan (30 years = 360 Months)
Amortization (Is the loan interest only, 15 year AM, 30 Year AM)
Principal Loan Amount
Escrow Deductions
Interest Rate
Total Payments

Probably a couple more items but those are the important ones.

Answer 5

Give Ralfcoder best answer and wrap it up. Not even I could explain it better :)