Open-End Mortgage

  

Categories: Mortgage

There is a beginning. No end. The borrower pays off the mortgage, more or less as she wants, or as she can. The interest rates are fairly set; there's a minimum payment each month. But the duration of the mortgage is flex. It moves. Maybe it re-indexes against LIBOR every three months. Maybe there's a minimum of $10,000 in principal that has to be paid off each year.

Other than that, lots of choices. It's open.

Related or Semi-related Video

Finance: What are the components of a mo...1 Views

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Finance Allah shmoop What are the components of a mortgage

00:06

payment All right so here's a weird thing about mortgages

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When you borrow say four hundred grand buy a home

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and say in a six percent fixed thirty year interest

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you'll end up paying way more than the four hundred

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grand just in interest Renting the money Think about it

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Well you'll have a monthly pay payment of twenty four

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hundred bucks and by the time you've made thirty times

00:27

twelve per year or three hundred sixty payments you'll have

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paid some four hundred sixty three thousand dollars in interest

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charges Seems like a lot of money to pay out

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of your own pocket But since mortgage interest is usually

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entirely tax deductible well the rial cost to most home

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borrowers is actually meaningful E less than that six percent

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interest maybe something closer to a three and a half

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four percent something like that So while yes on a

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total gross basis you will have paid out more than

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the amount borrowed over the thirty year course in the

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mortgage you'll also have been forgiven loads of taxes And

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for what it's worth over most thirty year time periods

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in history the market has gone up about eight to

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ten percent a year on average Compound did something like

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that So you feel the people mover floor moving fast

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underfoot with inflation pushing things around as you go along

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Well the money you borrow is the principal of the

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loan and that number usually declines by a small amount

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each month As you make a flat payment and it's

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usually gradually paid off Check out what the principal of

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four hundred grand looks like for the first twelve months

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of payments right here Note that the flat monthly payment

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is twenty four hundred dollars and see how the principal

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payed as part of this payment loan thing there goes

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from paydown of three hundred ninety eight dollars Teo Well

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four hundred twenty a year later right Like you're paying

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off principal little by little So you have less that's

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attributed to interest And Mohr that's attributed to principal pay

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down as you go along and note that this assumes

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Ah flat monthly payment here Right You're paying the same

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amount You're one you would You're thirty two thousand three

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hundred ninety eight dollars and twenty cents on this particular

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alone So after a year the amount owed an interest

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is well just slightly last Here in this example it's

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one thousand nine hundred seventy seven bucks down from in

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a two grand and note what it looks like at

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the end of each of the first five years That's

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a big shift from almost entirely interest do now Principal

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being ah meaningful part of it you got after ten

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years right here and then at the halfway point in

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fifteen years it's here So I noticed that the amount

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owed at this point is roughly half the total Why

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Because the lion share the pay down went to interest

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in the first half of the life of the mortgage

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AII those first fifteen years and well then in the

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back half way more will be attributed to a principal

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pay down than to interest Like check out what the

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very last month's payment looks like It's just twelve dollars

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of interest and two thousand three hundred eighty six dollars

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of principle All of this is principal until well then

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the balance is zero and we'll finally Then you will

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have fully paid off your mortgage and own your home

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