Opinion

Louisville Home Loan – Where Your Payments Go

Photo of two cute homes in Clifton Louisville KY

Sometimes the smart choice is buying less home than you can afford and save money on all those interest payments, which can really add up.

If you have a Louisville home loan you will be paying interest monthly on the whole balance that is still owed. At the beginning almost all of the payment goes towards paying off the interest. As the years go by, however, less money is put towards the interest and more gets put towards the principal.

If you have a 30-year mortgage to pay off, for example, at a 7% rate (sounds absurd, right?), you will still be paying more towards the interest than the principal, even when you are halfway through the payments.

When you are 15 years into the mortgage only about 75% of your payment will apply to the interest. At this point only 1/4 of your payment is building up the equity in your Louisville home.

With this in mind, you will not see more than half of your payments being put towards the principal until you are in your 22nd year.

Wow.

That is when the equity continues to build at a rapid pace and everything gains momentum.

With this 30-year loan, you do not own half of the home until the 22nd year or so. There are a couple of ways to reduce this time, however, if you can afford them.

Extra Payments

As long as there is no clause on your mortgage for prepayment penalties, you can make extra payments when you have extra funds at hand. This will speed up the process so that your payments go towards building up equity in your home faster.

15-year Mortgage

You will save an incredible amount of money on your Louisville home loan by taking out a fifteen year loan at the beginning. If there is any way to afford it, this is your best option in terms of long-term savings.

As an example, if you have a Louisville home loan at 7% for $150,000, a 15-year mortgage will save you about $117,000 dollars over a 30 year loan. This is a staggering amount of savings and makes a 15-year loan well worth your consideration when you are first looking for a mortgage.

You will have to take another look at your budget to see where you stand before making a final decision about your mortgage. If you can’t afford a 15-year Louisville home loan, you’ll still have the option of making extra repayments when possible with a 30-year term.

About the author

Tre Pryor, Editor-in-Chief

Tre Pryor is the recognized expert Louisville Realtor who can:
  • List and sell your current home in Louisville,
  • Help you purchase your next Louisville home, or
  • Guide you in your relocation to Louisville, Kentucky
» Contact Tre now!

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