Let’s take a closer look at the monthly mortgage payment. For a 30 year mortgage, Shawn will make 360 monthly payments. Each payment is comprised of Principal & Interest.
Shawn got a great rate of 6.5%. That is an annual rate. If Shawn were to pay off his mortgage in 1 year, he would pay 6.5% interest. However, Shawn’s mortgage is for 30 years. He will pay a lot more than 6.5% interest. In fact, for the first 5 years of his loan, Shawn will pay more than 80% interest in each loan payment .
As you can see:
- Shawn will pay more than 85% interest in his first mortgage payments.
- Shawn will pay more than 80% interest in his first 5 years of mortgage payments.
- Shawn will pay more than 50% interest for nearly 20 years of mortgage payments.
- Shawn will pay 6.5% interest in first month of his 30th year of mortgage payments.
If this chart looks kind of like a jail cell, it is. Being trapped behind mortgage interest payments for 30 years is like being in jail. In fact, it’s worse. Interest never takes a break.