Loan Payment Accelerator - Magic of compound interest

This is one of my favorit topic.

If you have $100,000 loan with 30 year fix rate as 7.0%, your montly payment is $665.30.

If you pay $665.30 every month, how long will it take to pay off?

360 month (30 years). You pay total $23,9510.98.

No surprise, right? We have these contract with loan company.

If you pay $100 (about 15%) extra every month, how long will it take to pay off?

247 month (about 21 years). You pay total $189002.73.

Surprise? I was. It is about $50K less and pays off 9 year early.

It is the magic of compound interest. If you see above graph carefully, you'll find less than $100 is paid for pricipal in the begining.

That's why it takes long time. Many people say mortage interest has tax advantage. Yes it is true. But the condition is that if you pay $3, you get back $1. You can choose not pay $3.

But I'm paying just minimum mortage and I cannot pay extra 15%!!!

Yes I know. But if you have side business or home based business, you'll have tax advantage.

It will be next topic.

BTW, if you'd like to play with graph calcurator, here it is:

http://NotaryLoans.com/calc/

-Naoki