Mortgage question?

Question

Hi
I am trying to understand how my mortagage/interest rate is all calculated.
We purchased our home though an auction, and its owner financed us. Its a little confusing.
Anyways, the purchase price was 34,000 w/10% interest 1000.00 down and 375.00 per month on ballon note for 5 years. At the end of the 5 years we wil have 28,000 paid off. And will either have to refi or pay off the remainder or if the owner wants to refin.
Im not understanding how the interest is calculated. Is it 10% of each payment we make of 375.00? Or is it 10% of the overall loan amount of 34,000. Interest and all will be approx 50,000.
Currently it has been exactly 24 months since we started making our payments, we have made them on time, so Im certain we will get a lower rate. The amortization shows that we have only paid off a little over 3 thousand however when I calculate Im coming up with different figures.

Thank you all so much. You have all helped to answer my questions
Have a great day

Answer 1

Unfortunately, the $3,000 figure is probably correct. At 10% interest on a traditional mortgage amortized over 30 years, you would pay approximately $300 in principal and interest. Of that $15 would be principal in the first year, going up to about $18 in the second year. That would mean, at the end of year two you would have paid approximately $7200; about $6800 of which would be interest.

You will have to look to your purchase contract in order to determine the terms of your agreement. If you have $3,000 in equity in two years, that is pretty good though.

Good luck.

Answer 2

The monthly interest is 10%/12 months times the total amount you owe. For example, the first month of your loan, you owed $33,000 ($34,000 purchase price less the $1,000 down payment); so the interest you paid the first month was $33,000 * (10%/12) = $275.00. So your first payment of $375.00 was $275.00 in interest and $100.00 toward the principal.

I put your information into a Bankrate calculator, and it shows that at the end of five years, you'll still owe about $25,300 on your loan (that will be your balloon amount or the amount you'll have to refinance at that time). To fully pay off the mortgage given the interest rate and the payments would take approximately 13.3 years; so only paying for five years leaves a lot remaining to be paid back.

Per the calculator (the link is below), you'll have paid about $14,700 in interest over the five years.

Answer 3

According to my calculations after 24 mths the principlae balance should be around $30,355. When the balloon is due you will need to refinance around $25,256.

The 10% interest should be calculated of the remaining principle balance each month. Ex. of first few months:

Principle Interest Payment Remaning Principle
$33,000 $275 $375 $32,900
$32,900 $274 $375 $32,799
$32,799 $273 $375 $32,697

This only holds if it a note with interest compounded monthly.

Answer 4

Definitely more money is going to go toward your interest than your principal, so if you are saying that you have only paid $3,000 principal in 2 years, that sounds about right. I would hope you could get a better rate for your mortgage than 10%. Rates are a lot lower than that right now. Of course it depends on your credit too. I am a Realtor and we have a mortgage calculator on our website. You are welcome to check it out. www.covermewhileimove.com.

Answer 5

Balloon notes are complicated, sometimes, and my not having access to your contract makes it difficult to guess what is going on.

However, you are entitled to full information from your lender, including a schedule of payments made to date and where the principal and interest has been allocated on each payment.

Contact your lender and ask them to send this to you, in writing, so you can see exactly what they are doing with your $$$.

FYI, you should have also received this information on your truth in lending statement and loan documents, so check your files, too.

Good luck and best wishes.

Answer 6

You'll need to check with them to see how the interest is calculated. It is normally per year but you'll see the apr high than the rate quoted.