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6.3 Home Mortgages

6.3 Home Mortgages
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  • Math Help

    A spreadsheet was used in Example 3 to make an amortization table. This is a useful method for homeowners who are trying to keep up with their mortgage balance, as well as their home's equity.

    To access a home's equity, a homeowner can obtain a second mortgage. A second mortgage is a loan that uses the home as collateral to guarantee repayment and allows the homeowner to receive the full amount at once and to repay it over a fixed period of time. A homeowner can also obtain a home equity line of credit (HELOC). A HELOC is a loan that uses the home as collateral to guarantee repayment and is structured as a revolving line of credit, similar to a credit card: the lender agrees to lend a maximum amount of money within an agreed period of time, and the borrower can use the entire credit line, or borrow specific amounts from time to time. The interest rate on a HELOC is generally variable, although some lenders offer fixed rate HELOCs. For more information, read "What you should know about home equity lines of credit."

  • Consumer Suggestion

    You can drastically reduce the life of your mortgage loan and amount paid in interest by increasing your principal payments. To see the changes that would occur for a specific loan, check out E-Loan for a mortgage amortization calculator.

  • Checkpoint Solution
    1. An amortization schedule showing the effect of the additional $100 monthly payment is shown in the spreadsheet.

      You pay off the mortgage after 306 months, which is 4.5 years sooner.

    2. By making the additional payments, you paid a total of

      This is a savings of

  • Comments (1)

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    Ron Larson (author)1 decade ago |
    Example 3 is a great example. One way to think of a principal payment is that once you have paid the interest on your mortgage for a month, you are generally free to pay any additional amount directly to the principal. It is surprising that additional payments of even $10 or $25 can end up saving you thousands of dollars in interest.
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