Compound Interest Example: Now, let’s say you’re going to need a little more time to repay the loan. Let’s say you need 30 years (typical mortgage) to repay it. The bank punches the numbers and gives you a payment and terms:
$100,000 * 6.5% * 30 years
- Monthly payment = $632.07
- This is where most people stop. All they care about is the monthly payment. “Sure, I could afford that!” But keep reading the loan terms!
- Total borrowed = $100,000
- Total interest = $127,544.49
- Total payments = $227,544.49
OK, wait a minute. Who in their right mind would pay $215,839.19 for something that cost $100,000? Apparently we all would. You will pay more in interest than you borrowed if you make all your payments on time. That’s how a mortgage works, and that’s what people pay. But it doesn’t have to be that way.
Read on for TIPs on how to make your most expensive monthly bill your life’s absolute best investment!