Pay off mortgage?

dt123
Sat, 24 Jan 2009 01:04:04 +0000

It is true. Check out a sample amortization table at [Mortgage Calculators: Amortization Tables, Loan Balance, Interest And Principal](Mortgage Calculators: Amortization Tables, Loan Balance, Interest And Principal). Just pick the already filled-in numbers and click. You’ll see that in a 30 year fixed rate loan, after 10 years you have paid off 17% of the principal, after 20 years, 47% of the principal, so in the last 10 years (out of 30) you pay off well over half the principal. Year by year, if you pay off early, you end up losing more and more of the benefit of the prepaid interest built into the schedule. It would rarely make sense to pay off a 25 year old mortgage. I did mine, just because I was really sick of the payments and could do it.

(If it is not true, it is a common misunderstanding among the rabble I associate with, and I am ready to learn the truth. I have always felt like a fool for paying off my mortgage.)

Maybe it is not true the banks do this to shaft the borrowers, but whatever genius came up with the amortization formula did not do it to make it fair to the borrowers.