Monthly payment goes mostly towards interest?!

amother

Aqua

Tue, Feb 02 2016, 12:13 pm

We live in NJ , a place of crazy high taxes, so I know a large part of our monthly mortgage pmt goes to that.
However, it seems that the interest payment is 3 times more than what goes towards the house! So after a year of huge mortgage payments, we barely have any equity.
We thought we got a decent interest rate, but this seems financially unsound to me.
Is this common? And how do we fix this?
Dh wanted a house , to build up equity, and yet we are not at all.
Please help

syrima

Tue, Feb 02 2016, 12:19 pm

Yes that is true for everyone, not only in NJ.
The true payoff amount for your house is not the actual price- it is much more.
But that does not mean you are not building up equity - each payment you are coming closer to owning your home. And the mortgage interest is TAX DEDUCTIBLE, unlike rent.
Imamother accountants, back me up on this?

amother

Aqua

Tue, Feb 02 2016, 12:25 pm

So for example, let's say we pay 50k a year to the mortgage, 24 k to interest and 8k to the equity in the house? That's standard?
I'm so confused. I thought most of the pmt goes towards the house and taxes, less towards interest.

suzyq

Tue, Feb 02 2016, 12:30 pm

With mortgages, the interest is front-loaded - meaning, at the beginning of your mortgage, you are paying mostly interest and little principal, but as you have been paying for years, you start paying more principal and less interest. After a few years, you will see your equity start to build much quicker. It's still a good investment as long as you can really afford it, because your mortgage payments (as long as you have a fixed interest rate) stay stable, while rent usually increases over time.

5*Mom

Tue, Feb 02 2016, 12:30 pm

amother wrote:

That's the way mortgages work, I'm afraid. When you closed on your home you should have been given an amortization table that shows you the schedule of how much of your monthly payment goes towards interest and how much goes towards paying down the principal, and how that changes over time. It does take a few years to start building equity if your house is mortgaged but home ownership is still seen as a very sound investment as long as you don't plan to sell up in those first years of mostly interest payments.

amother

Green

Tue, Feb 02 2016, 12:45 pm

Normal.

I've owned my home for 11 years Originally put down 40% on a non-expensive home And still paying tons towards the interest and not a lot toward the equity. I wish I could see the equity number going up higher...but it is getting more as the loan gets older (but we may refinance soon so that will change again).

amother

Aqua

Tue, Feb 02 2016, 12:52 pm

The problem is a few fold, first of all we planned to do construction and dh was counting on a home equity loan.... which is not possible now.
Also, and more importantly, dh was wrongly counting on a promised raise to make the pmts. Not only did he not get the raise, now they lowered his pay. So we are months behind in our payments. I guess seeing that most of the money is not even going to the house really shocked me.

shoshanim999

Tue, Feb 02 2016, 2:11 pm

This is a perfectly legal scam that all banks do. For example if you would borrow 100k for 30 yrs at 4%, your monthly payment would be around $480. That means after 30 yrs you will have paid the bank around $172k. That's 100k in principle and 72k in interest. You would think that since after all 360 payments are made you will have paid more in principle (100k) than in interest (72k), that each individual month would Also be more principal than interest. Wrong. The bank structures the monthly payments in a way that in the beginning of the loan around 80% of your monthly payment is interest. The reason they do this is so that if after let's say 5 yrs you come into alot of money and pay off the entire loan, they will have already made alot of their interest off you.

lkwdreader

Tue, Feb 02 2016, 3:00 pm

One thing that you can do is take a certain amount of money each month and send to the bank and mark it PRINCIPAL ONLY - This will go straight to the principal and you will see your principal go down. However - the idea behind mortgages, is that the interest is deductible, and since the dollar value keeps going up with inflation, by the time you will be paying principal, the amount of money you will be paying, will supposedly be very low, compared to the rates other people are paying for rent. The problem, of course, is that your taxes, and insurance will have gone up considerable.- so that argument is not so realistic anymore.

amother

Aqua

Tue, Feb 02 2016, 3:08 pm

That is a crazy scam!
We can't send them money over the month, adina. My husband called and said it's easier to pay you twice a month than one lump sum. They won't let. They wont accept it if we send in the money over the month as we have it.
They did not even want to accept a partial payment now, only all the money owed. Finally, he spoke to a supervisor to ok it.
Doesn't even make sense. Wouldn't they rather get the money in smaller amounts but on time , than we should owe months at a time?

lkwdreader

Tue, Feb 02 2016, 3:18 pm

I understand your frustration - They won't take partial payments to your monthly mortgage amount because that is their rule and they have mortgage documents to hold you to that - but they will take payments towards principal, which it doesn't sound like you have the money to do that right now. Good Luck !

lkwdreader

Tue, Feb 02 2016, 4:07 pm

Yes - you would have to make your regular monthly mortgage payment, and then you could pay extra and apply it to the principal. Even if you do a small amount each month, you are knocking down the principal. - Also have you checked out renegotiating the interest rate on your mortgage through HARP. (government program to lower interest rates on strapped homeowners of primary residences)

amother

Aqua

Tue, Feb 02 2016, 4:15 pm

Not sure about harp, right now we have a government loan I think. We applied for help from the mortgage company, but they're being very slow about making any decisions.
Will ask dh about harp.

5*Mom

Tue, Feb 02 2016, 4:30 pm

amother wrote:

This really shouldn't mean that you fall behind on your mortgage payments. If you ultimately have the full amount each month but you get the money in increments, put it aside as you get it - a special account for your mortgage payments might be best to help you prioritize your mortgage and avoid spending the money on other things - and pay the monthly amount at once.

amother

Gray

Wed, Feb 03 2016, 4:30 pm

When I first bought my house, I was told that after a year of owning, we will maybe own the front door, I think it was highly optimistic, more likely just the welcome mat!

Loans work on amortization, you can look it up and put your loan into an amortization calculator and see what you will actually be paying towards principal and interest for the life of the loan.
Warning, it's depressing to see, but good to get all the facts on the table, so you can see when you may have equity to borrow against etc.