Loan Analysis $200,000 @ 6% Interest

A person buys a $200,000 home at 6% interest. On a 30 year mortgage they'd have a monthly payment of $1199 per month. Not bad, right? 6% interest is fair, right?

Multiply $1199 by 12 and the potential homeowner would pay a total of $14,388 for the entire first year. One might think, "Cool, I've got close to $15,000 in payments under my belt. That should knock off quite a bit from my loan amount." WRONG!!! After one year of payments the person would have paid down the balance of the loan $2,456.

Wait a second! Flag on the play! Player off sides! Back it up! I'm no math genius but YES, out of $14,388 only $2,4,56 is credited toward the principle. Not even $2,500 will come off the balance. $11.932 in interest.

Whose pocket does the principle go into? It goes into yours as equity. Whose pocket does interest go into? It goes into our good old friend's pocket. "The Bank".

Let's fast forward 5 years into the loan. A total of $71,940 will have been paid to the bank. How much came off principle? A whopping $14,159. Which brings the balance down to $185,820. So not even $15,000 came off the balance after making $71,940 in payments.

The Half Way Point in a 30 Year Mortgage (It's not year 15 all you math wizards)

Year 21 takes the cake folks. Your balance would be $100,573. Total interest paid would be $201,548. Is this making more sense now? Now do you see why all the largest buildings in major cities are owned by banks?

Let's get to the bottom line. Only 3% of the population actually pays off their 30 year loan. If you're like the other 97%, things happen and you will have to refinance every so many years or you will move into another home. Don't feel bad, the system is designed to keep the homeowner in debt.

So after 30 years, when this mortgage is paid off, the homeowner will have paid a total of $431,640. What's wrong with this picture? Paying $231,640 in interest is legal robbery in my opinion.

A person would pay more than double what the initial loan amount was. With the bank receiving all of that interest, no wonder why it takes 30 years to pay off a mortgage. Just wait until you see what an amortization schedule looks like...