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Not sure where you live, Phil, but that's absolutely not the way mortgages are structured by national banks in the US. In the early years of a mortgage, the buyer is gaining the leverage of a large amount of the bank's money, so a huge percentage of his payment goes to interest on the loan. In the later years, when the remaining principal is smaller, he pays less interest. The buyer's total payment is the same amount over the term of the loan, but the portion allocated to principal vs interest varies linearly over time, til remaining principal == 0. At any time, the buyer can pay off the note by delivering the currently-remaining principal to the lender. The schedule you describe would effectively prevent anyone from ever moving before their mortgage was mostly-completely satisfied. If you bought a $200K house and sold it a day later, you would have to send the bank a check for about $600K. I'm pretty sure this never happens. Furthermore, the lender is always making his margins (modulo interest rate variability, and ignoring loan quality), because any payments sent to the lender by the borrower will get re-loaned to someone else. I guess you could write a contract so that the borrower would be penalized if he paid off early, but I'm not sure it wouldn't be usury. Note that if you double a mortgage payment, you should be explicit that you want the excess applied to your remaining principal. Otherwise, the bank can choose to apply it as "the next payment" and therefore split at your current ratio. Regardless, you still have to pay next month's bill too. :) |