The Life of a Loan

Modern home loans are designed to allow people to borrow as much as possible and have the same payment for the entire length of the loan.  This may or may not be a good idea.  Certainly, it has  helped many people become homeowners who would never have managed it otherwise. 

Each payment is composed of an interest portion and a principal portion.  In the beginning, almost all of the payment is interest.  As time goes by the loan begins to pay down and more of each months payment goes to principal.  Unfortunately, most of the payment in the first 15 years of a thirty year loan goes to interest.  Since most home loans are refinanced within seven years, most payments are spent on principal.

To be continued...