Posted on: 08th Jun, 2011 12:56 pm
Can the lender change the proportion of principal and interest payments?
On a 30 year fixed loan, all your payments are amortized over the 30 years. Everything remains constant to pay off the debt withing the amortized period. If you have late payments or other fees, your payment will increase to cover the charges. If your payments have changed, you might have got a ARM that was fixed for a shorter period of time. Many loan officers would lie and tell clients that the rate they are getting is fixed. Well they just failed to tell you how long it was fixed for.
I sure hope that in 2011, "many" loan officers are not lying. Even if that's the case, any borrower with opened eyes and an attentive lawyer at his side would be able to clearly see the promissory note that he's signing identifying the loan as a fixed or variable rate.
That aside, I think we need to discuss amortization.
Guest, your interest payments will decline month by month as you make payments that reduce the principal balance. At the same time, your principal payments will increase every month. Just for the sake of using numbers to illustrate this, let's say your payment monthly is $500.
In the first month of your loan, we'll assume that you pay $445 in interest, leaving $55 principal, which reduces your balance. The next month your interest might only be $440, making the principal $60. This process happens every month until such time as your loan is paid in full.
If it is, indeed a fixed-rate loan, then the monthly payment ($500 in the example) cannot change. The interest costs will drop each month and the principal payment will increase each month.
I hope that's clear.
That aside, I think we need to discuss amortization.
Guest, your interest payments will decline month by month as you make payments that reduce the principal balance. At the same time, your principal payments will increase every month. Just for the sake of using numbers to illustrate this, let's say your payment monthly is $500.
In the first month of your loan, we'll assume that you pay $445 in interest, leaving $55 principal, which reduces your balance. The next month your interest might only be $440, making the principal $60. This process happens every month until such time as your loan is paid in full.
If it is, indeed a fixed-rate loan, then the monthly payment ($500 in the example) cannot change. The interest costs will drop each month and the principal payment will increase each month.
I hope that's clear.
Hi Guest!
Welcome to forums!
I agree with what Chris has said. For a fixed rate mortgage, the payments are amortized for the whole term of the loan. The lender cannot change the proportion of principal and interest payments as per his whims and fancies. But the interest rates will decline with time as George has suggested.
Feel free to ask if you've further queries.
Sussane
Welcome to forums!
I agree with what Chris has said. For a fixed rate mortgage, the payments are amortized for the whole term of the loan. The lender cannot change the proportion of principal and interest payments as per his whims and fancies. But the interest rates will decline with time as George has suggested.
Feel free to ask if you've further queries.
Sussane
Sussane, please go back and read what I wrote. I said nothing about "interest rates." What I indicated is that as a borrower pays down the principal balance on a loan, the resulting interest - now calculated on a lower balance - will be less than the preceeding month.
I'm afraid that amortization isn't such a common word among the proletariat, and that we often insufficiently school those whose questions we deem it appropriate to answer.
Guest - if you are still reading this thread to get information, please don't misread what's been said. Your interest rate on a fixed rate loan will neither go up nor down - it cannot change; but the amount of interest paid from month to month will change (it'll decline) and the amount of principal paid efrom month to month will also change (it will increase), thereby reducing the overall amount of money you owe. This continues for the duration of the loan term, so that when you've made your last payment ever, your balance will be ZERO, and for that we say Hallelujah.
I'm afraid that amortization isn't such a common word among the proletariat, and that we often insufficiently school those whose questions we deem it appropriate to answer.
Guest - if you are still reading this thread to get information, please don't misread what's been said. Your interest rate on a fixed rate loan will neither go up nor down - it cannot change; but the amount of interest paid from month to month will change (it'll decline) and the amount of principal paid efrom month to month will also change (it will increase), thereby reducing the overall amount of money you owe. This continues for the duration of the loan term, so that when you've made your last payment ever, your balance will be ZERO, and for that we say Hallelujah.