what is my current effective mortgage interest rate?

M

marcoPolo21

I'm trying to figure out what interest I'm paying for my mortgage,
going forward from today.
I'm trying to decide whether to pay it off early.
[taxes doesn't play a part in this decision]

current mortgage balance owed: $55,300
57 months [4 3/4 years] left on mortgage
total monthly payment $1075 [loan only]
$105 average goes to interest
$970 average goes to principal

so,
over the next 4.75 years, I'm paying $5,985 in interest,
which is about 10.8% of the 55,300.
What is my current effective interest rate, going forward?

thanks
marc
:confused:
 
The rate is the rate on your loan. Look at you paperwork. The rate doesn't change. You can effectively reduce the total amount of int paid by accelerating your payments. Also, each payment in an amortized loan is made up of int and principal and this changes for each payment. So with each payment less goes to int and more goes to principal.

A better question to ask is "can I get a better return than I am paying in int" (again, the rate on your loan)?
 
Arnie said:
The rate is the rate on your loan. Look at you paperwork. The rate doesn't change. You can effectively reduce the total amount of int paid by accelerating your payments. Also, each payment in an amortized loan is made up of int and principal and this changes for each payment. So with each payment less goes to int and more goes to principal.

A better question to ask is "can I get a better return than I am paying in int" (again, the rate on your loan)?
More...
Doesn't the "effective" loan rate change, over the years?

For example, if I pay off the loan with a few years left,
when the interest payments are small, and getting smaller ,
haven't I effectively paid more for the loan?
The last years of the loan are getting closer to 0% interest.

While the first few years of a loan one might as well pay rent.
Who ever created real-estate amortization was a genius!

Maybe I'm just missing something.

marc
:(
 
Although you are paying less and less int on each payment, its not because the rate is changing, its because the principal balance is getting smaller with each payment. In an amortized loan, you are paying int on the balance. Each payment reduces the balance, so with each payment your int is less and less. But you can reduce the total of int paid by accelerating your payments.
 
Arnie said:
Although you are paying less and less int on each payment, its not because the rate is changing, its because the principal balance is getting smaller with each payment. In an amortized loan, you are paying int on the balance. Each payment reduces the balance, so with each payment your int is less and less. But you can reduce the total of int paid by accelerating your payments.
More...

I’m aware my rate doesn’t change.
Here's another way I can explain, or see it:

If one were to take out a loan Today, for $55,300,
for 57 months, with a total monthly payments of 1075,
what would his interest rate be?
[I believe, this is my Current situation]

Would it be 2.28%,
[10.8% divided by 4.75 years]
or some other percentage?
I don’t think it can be an annual interest rate of 10.8% !

Again, maybe I’m missing something.

thanks
marc
:(
 
Do you have the fixed rate mortgage? If yes, the interest rate is annual, true? So if the interest rate is annual, for the monthly interest payment to calculate you divide the interest rate% by the 12 months.
For example if your interest rate is 6%. The loan is for the $100,000.
6%/12 = .005
.005x$100,000 =$500.00
So pretend the mortgage is $600.00 fixed payment

$100,000 loan Interest Principal $100,000.00
- $100.00
------------------
First month $500,00 $100.00 = $600.00 $99,900.00


For the second month interest you do the calculation of .005x$99,900.00=$499.50

Interest Principal $99,900.00
- $100,50
----------------
$99,799.50
Second month $499.50 $100.50 =$600.00


Then every month you do this on the new principal x .005 (annual) interest
 
marcoPolo21 said:
...
My loan is a 15 year fixed rate @ 5%

marc
:)
More...
-----------------------------------------------------------------------------------------------

Ok, so you pay the fixed morgage for 10 1/4 years, true? Now you have 4 3/4 years to pay on the 15 year fixed rate loan?
 
marcoPolo21 said:
I’m aware my rate doesn’t change.
Here's another way I can explain, or see it:

If one were to take out a loan Today, for $55,300,
for 57 months, with a total monthly payments of 1075,
what would his interest rate be?
[I believe, this is my Current situation]

Would it be 2.28%,
[10.8% divided by 4.75 years]
or some other percentage?
I don’t think it can be an annual interest rate of 10.8% !

Again, maybe I’m missing something.

thanks
marc
:(
More...

You're currently paying 2.28% on the remaining unpaid balance of the note. ($1260/$55300)

If you took out a new loan as described, the rate would be 4.325%... more of the early payments on the new loan would be interest and less paid on principal than your present situation.
 
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