Understanding Mortgage Quotes
For new home buyers, mortgage and mortgage quotes can be quite hard to understand.
That is why I decided to write this article to help you understand the mortgage quote you are interested in and see if it is profitable for you.
The most important aspect of a mortgage deal is interest rate; knowing how to calculate interest rates and mortgage payments will help you understand the deal you are getting a lot better.
After you get the key points of calculating interests, you will be able to see if the mortgage deal you are getting is actually profitable.
To make it easier to explain the concept, let's assume that you are getting $100,000 worth of loan with 6% interest rate per year, fixed, and 30 years amortization.
Your mortgage deal is stating $599.
55 monthly payments.
With 6% annual interest rate, the actual interest rate would be $6,000, which means you are paying $500 each month on interest rates alone.
Deduct that amount from the monthly payment and you have $99.
55 reduction to the loan's principal amount.
If you continue the calculation, you will see that next month you will have to pay different amount of interest.
Your loan's principal is now $99,900.
45, so the 6% annual interest rate is now valued at $5,994.
03; it is $499.
50 monthly.
With the new amount of interest paid, you next installment would reduce the loan's principal by $100.
05 ($599.
55 - $499.
50), making the unpaid principal balance valued at $99,800.
40.
The system is based on the concept of paying interest in arrears.
You are paying 30-day worth of interest on every installment to begin with, and the remaining amount of the payment you make will deduct the actual loan's principal.
Use this knowledge to help you compute different mortgage scenarios you are getting from different mortgage quotes.
You can easily determine the total amount of interest you are paying for the mortgage plan, and use it to compare mortgage deals; seeing which one costs you the least would be very easy now, right? You will be able to separate profitable home loans from the one ripping you off with unreasonably high interests.
That is why I decided to write this article to help you understand the mortgage quote you are interested in and see if it is profitable for you.
The most important aspect of a mortgage deal is interest rate; knowing how to calculate interest rates and mortgage payments will help you understand the deal you are getting a lot better.
After you get the key points of calculating interests, you will be able to see if the mortgage deal you are getting is actually profitable.
To make it easier to explain the concept, let's assume that you are getting $100,000 worth of loan with 6% interest rate per year, fixed, and 30 years amortization.
Your mortgage deal is stating $599.
55 monthly payments.
With 6% annual interest rate, the actual interest rate would be $6,000, which means you are paying $500 each month on interest rates alone.
Deduct that amount from the monthly payment and you have $99.
55 reduction to the loan's principal amount.
If you continue the calculation, you will see that next month you will have to pay different amount of interest.
Your loan's principal is now $99,900.
45, so the 6% annual interest rate is now valued at $5,994.
03; it is $499.
50 monthly.
With the new amount of interest paid, you next installment would reduce the loan's principal by $100.
05 ($599.
55 - $499.
50), making the unpaid principal balance valued at $99,800.
40.
The system is based on the concept of paying interest in arrears.
You are paying 30-day worth of interest on every installment to begin with, and the remaining amount of the payment you make will deduct the actual loan's principal.
Use this knowledge to help you compute different mortgage scenarios you are getting from different mortgage quotes.
You can easily determine the total amount of interest you are paying for the mortgage plan, and use it to compare mortgage deals; seeing which one costs you the least would be very easy now, right? You will be able to separate profitable home loans from the one ripping you off with unreasonably high interests.
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