Facts of Life
What I learned from "the school of hard knocks" or
Really.... that's how it works??!!
How is a typical loan paid off?
When you make monthly payments on a loan, did you know that your monthly payment pay off the bank FIRST and then your house? In fact, at first you are paying MOSTLY interest back to the bank. It can take you quite a long time to build up equity (the amount that you actually own of your home)!
Here are some more details:
30 Year Mortgage Amortization Schedule - Mortgage Calculator
What do you notice? You pay the SAME monthly amount but initially it is mostly interest, but over time you begin to pay of the principal (so that eventually you will own it entirely).
However, if you want to own it quicker AND SAVE a lot of money you can tell the bank that you will be paying an additional $xxx per month "to my principal". The more you pay off on the Principal - the faster you pay it off and it can actually stop paying your mortgage sooner!
Look at this graph and then the table. What do you see? Did you know that you very gradually begin to build equity even though the MONTHLY payment stays the same?
Here is some info from Dave Ramsey: https://www.ramseysolutions.com/real-estate/how-to-pay-off-mortgage-early
Okay, you probably don’t need me to tell you that every dollar you throw at your mortgage payment puts a bigger dent in your principal balance. And that means if you make just one extra payment annually, you’ll knock years off the term of your mortgage—plus save thousands of dollars in interest.
How does that work? Let’s crunch the numbers. We’ll say you have a $240,000, 30-year mortgage with a 7% interest rate and a monthly payment of $1,597 for your principal and interest. If you made an extra payment just once every quarter, you’d pay off your house nearly 15 years early! That would mean cutting the length of your mortgage in half and saving a whopping $184,000 in interest along the way.
If you want to see how much time and money you’d save making extra house payments in your specific situation, check out our free mortgage payoff calculator.
What are Income Tax Brackets?
What does it mean when they say "I am in the 22% Tax Bracket"? Does all of your income at tax at that rate? What if you get a raise and you "suddenly" get pushed into that bracket, should you decide NOT to get that raise because "my taxes will shoot up!"?
