Why do mortgage companies let the borrower pay more for the interest and less for the principal?

Question

I was looking at my amortization schedule and I see that most of my monthly payment goes toward the interest right now, why is that?

Answer 1

Lenders only make money on interest.  You can make payments that are more principal than interest if you want to.  It will save you a lot of money if you do.

Answer 2

Because the interest load is the highest at the start of the mortgage, given that you are borrowing the full amount until you start reduction of the principal.  The interest is based upon the rate broken down into monthly payments, plus an amount for principal reduction.

Answer 3

You accepted a huge chunk of change from them, money they are not getting interest from any other way then you.

If you want to balance it out faster pay extra towards your principle each month.

Answer 4

And. . .if you decide to pay more than your monthly payment be sure that they do credit it to principal.  I paid extra on my car and found out they were just applying it to future payments rather than principal so I wasn't saving any interest.  I found out you have to call the extra amount in and tell them to apply it to principal.  And if you have credit cards. . .be sure you pay more than your minimum payment or you will be paying forever.  It's true. . .they only want the interest.

Answer 5

Interest is charged each month depending on the balance of the loan.  You pay the interest first, then the principal.  The smart thing to do is to pay more than the required payment.  Whatever you pay over the monthly payment goes completely to paying the principal.

Answer 6

Each payment you make consists of two parts.  The first part is for the previous months interest.  The second part pays down the principle.  Then next month you pay less interst because you owe less money.  If the payment is the same, then you will pay more principle.  Towards the end you will be paying primarily principle since the loan is almost paid off, and you owe very little on which they can charge you interest.

Answer 7

Because that is how they make their money. They don't care if you ever paid the debt for as long as they have all the money they invested plus all they can from you.

Usually you paid three times the cost of what you borrow from them... and they pocket the difference.

If you paid more a month you need to make sure that the extra goes to principal if not they will take it and put it in the interest. Watch out with them.

Anna del C.

Author of "The Elf and the Princess"

and "Trouble in the Elf City"

Answer 8

Because They dont want you to pay off the Morgage. If you read in your contract. It clearly says Mr or Mss if you dont pay off this debt on the day time ends you will have to make a hole lump sum payment to the Your lender.Banks dont want you to get out of debt, They want you to never pay off your house and make you loose valuable time.Do you thing with a Monthly payment of 15000 you will pay off your home in the next 30 years if only 300 dll are going in to the Principal? Why let the money make money with our money and not make money with our money by ourselves for more info visit.www.Primerica.com

Answer 9

Add up the interest payments until it equals your original loan amount and you may be surprised at the number of payments left as you begin to pay it off a second time, and a third.

Even the smallest part time job, which is dedicated to paying additional principal, will reap great long term dividends. Because each dollar to principal actually offsets one dollar in interest, the only better investment is a Roth retirement mutual fund and that is only due to the compound growth. Good Luck.

Answer 10

.  In the 1920's and 1930's  all mortgages were interest only.  You never paid any principal at all.  That had advantages but you never built up any equity as your loan was paid off.  So the banks started offering loans that were amortized over 30 years.  In your first month you pay $990 interest and $10 principal.  In your last month you pay $10 interest and $990 principal.

Someday, someone will make a billion dollars by offering a better mortgage.  For right now , this is it.

Answer 11

Ummm ... it has nothing to do with mortgage companies. Mortgage companies simply place your loan with a wholesale lender. Mortgage companies have no impact on the way loans are structured or how a loan is paid off. The amortized loan is an industry standard, and not unique to mortgage brokers, or wholesale lenders, or retail lenders, or correspondent lenders, or mortgage bankers, or anyone else.

To answer the second part of the question you asked:

You have a fixed rate mortgage, right? OK.

Each month, more of your mortgage payment is applied to principal, and less to interest. That is how the loan is paid off.

Period.