How Principal & Interest Are Applied In Loan Payments | Explained With Example

[@rudy8409]

I understand that the interest payment when the loan balance is £100,000 is £6000 per year and therefore £500 per month. But how is that extra 99.55 decided? Do banks arbitrarily decide what the payment towards the principle starts at? Edit: i think i just figured it out as i was posting this comment. So the amount you pay towards principle is calculated on how much would need to be paid in order for £100,000 to be paid off in 30 years at 6%. Got it

[@rakeshchandrashekar8631]

Can you please explain how you would go about calculating that no?

[@alidiaamkalaf653]

Can you explain it please? I couldn't understand, like they decide it?

[@robertwalkden6950]

@@alidiaamkalaf653 If you just pay off the interest each month, then you will be in debt forever. The figure that the bank gives you on top of the interest payment is towards paying off the principle. The number depends on the size of the loan and the duration of the repayment. 1200 to be paid off over 1 years = 100 a month 1200 to be paid off over two years = 50 a month on top of interest

[@robertwalkden6950]

I should probably add that all they do is average the payment over time so as your interest payment decreases, the principle payment increases, keeping your repayment number the same each month. Otherwise you would owe a lot of money towards the start of your repayment.

[@RealEstateFinanceAcademy]

It only takes a few minutes to learn this in my FREE “Know Your Numbers” Crash Course. - Trevor learn.realestatefinanceacademy.com/finance-prerequisite

[@erutuon]

This finally clarifies for me why more of the payment goes to interest at the beginning. For some reason that didn't make sense to me before.

[@jimmyhaotran123]

Just wonder why no school in the world would teach us this in before we get into the bachelors, like how mortgages works, how to sue others, how to buy plane tickets, how to apply for jobs, how insurances works, how to change inks of the printer, how to build a laptop, how to join certain organizations, how to buy stocks, how to get licence, how nutritions works. Like those are more essential than social and scientific studies

[@RealEstateFinanceAcademy]

@jimmyhaotran123 - The system is designed to keep people from getting ahead.

[@foodiesworldUSA]

@@RealEstateFinanceAcademymine actually will inc or decrease depending on when I pay the next month’s payment so I had back to back payment with 1-3 days so had minimum interest pulled out on that payment but when I paid 30 days later from the last payment it charged me fir that amount of time gap!!! Also, it’s not considering my payments on principal amount at all so it doesn’t account the last principal only payment

[@dancorwin9232]

This was absolutely fantastic. Dives straight into the details but still explains things so smoothly to the point anyone will get it. Thanks a bunch!

[@RealEstateFinanceAcademy]

Thank you Dan. I appreciate the nice comment. - Trevor

[@cowboys2621]

This is a great explanation. For the consumers that are looking to make principal payments, you should do a similar video that shows the effect.

[@RealEstateFinanceAcademy]

Brian, thank you for your comment. That's a great suggestion. I will add that to my list! - Trevor

[@zacragoonath]

This was a really good explanation on something moderately complex but everyone with a mortgage should understand.

[@RealEstateFinanceAcademy]

Thank you, Zac. I’m glad it was helpful. What prompted you to watch the video? - Trevor

[@zacragoonath]

@@RealEstateFinanceAcademy interest rates are posied to increase at least here in Canada. We are 3 years into our 5 year term on a 25 yr amortization. Do you have anything about a variable rate and how the amortization and principal are affected?

[@seancarroll7244]

I’m 29 years old and never really understood how mortgage interest worked until watching this. Crazy that they don’t teach this stuff in school.

[@tatsumakisempyukaku]

OMG!!! Finally someone who makes this make sense

[@RealEstateFinanceAcademy]

Happy to hear that this was helpful! - Trevor

[@tatsumakisempyukaku]

@@RealEstateFinanceAcademy took my real estate exam a couple of hours ago and passed! This helped.

[@RealEstateFinanceAcademy]

Congratulations!! 🎉 😄👍🏻 Onward and upward!

[@Sandy-zd8vs]

Great video, thank you. Banks would never tell you their actual profit strategy, they only reveal the interest rate and payment term. They also say there would be no penalties to pay off a loan earlier, but when you try to do so you get to realize that the original amount didn't change much actually, despite having made payments for a couple of years. This is what happened to me when I tried to pay off my car loan earlier. I hate such hidden strategies that are not shared with the layperson for them to understand how it works and decide whether they want to go for such a loan.

[@saipansaru]

Isn't that how it works in this country? We are never told the things we need to know, that's why we have to do research for ourselves. The lucky ones find content like this! I also tried to pay off my loans early. Another thing the bank DIDN'T tell me was that my credit score basically disappears after a year or so without a loan. So I was heartbroken when I tried for another loan and my entire loan history was irrelevant. WHY?? That's research for another day.

[@alonenomore3346]

I just found out

[@alonenomore3346]

What a hustle

[@griffmac9350]

So just to be clear you are going to have to pay 215,614 dollars by the end of 30 years at 6 percent interest, absolutely mind blowing 🤯

[@siemprestruggle9272]

Is this correct?

[@griffmac9350]

Yes

[@siemprestruggle9272]

@griffmac9350 so the interest turns out to be more than the principal...now that is crazy, we live in a crazy world.

[@osaidhashmi]

Islamic finance is the answer. No compound interest.

[@alexsanderrain2980]

I think you mean the christian principle of banning usury. islamic finance is a cheap knockoff. @@osaidhashmi

[@vimalb88]

Thanks for explaining this man😅😅 Another one of those vital things they never taught me at school!

[@RealEstateFinanceAcademy]

Happy to help! - Trevor

[@sadmanjaoad6994]

Sorry it might be a stupid question. But how did you figure out the initial 599.35 monthly payment? What's the math for that?

[@RealEstateFinanceAcademy]

Not a stupid question all. In fact, it’s quite common… Calculating a loan payment requires a basic understanding of the components of mortgage loans: compound interest, time value of money, amortization, etc., along with a financial calculator. There are plenty of free mortgage calculators online, but if you actually want to LEARN how to do it, you can take my FREE course here: learn.realestatefinanceacademy.com/finance-prerequisite/ Hope that helps! - Trevor

[@kirannaik4417]

I also got stuck here😅

[@gujuriprashant2723]

@@kirannaik4417 Go with the formula pi/1-(1+i)^-n , where P is Principal . i = r/m ((6/100)/12) , n = m*t (6*30) you will get the answer 599.55

[@gettheshotcreations6782]

Very clear explaination! Thank you. Great setup! impresse that you can write backwards.

[@RealEstateFinanceAcademy]

Glad it was helpful! - Trevor

[@BroZGaminG-tk8bc]

I'm very much satisfied! You are super great writing backwards on the board! Love it! Thank you!

[@RealEstateFinanceAcademy]

Glad you like it! - Trevor

[@oikabirakittheaa]

Thank you for this clear explanation. But how is the initial $599.55 determined by the bank? What's the approach there to arrive at that figure?

[@RealEstateFinanceAcademy]

I just used that payment amount as an example, but the lesson applies to all principal & interest loan payments. Loan payments are calculated using an Amortization Table that is built into either a financial calculator or calculated with a spreadsheet formula. These are complex matrices that account for 1) term of the loan, 2) interest rate, 3) loan amount, and 4) final balance. It's difficult to calculate manually, but easy if you know how to use a financial calculator. Check out my playlists and other videos on these topics or let me know if you need specific guidance. Hope this helps! - Trevor

[@gregorydaley9076]

Hey Kabir, here is what this BANK sponsored fraudster doesn’t want you to know …. So Carlton…. What complicated matrix and magic formulaic impossibility did you happen to be acquainted with that divinely provided you with the figure of $599.95???? Funny how you can calculate the NON-complicated INTEREST RATE, seeing that the complicated matrix and recondite spreadsheet macros don’t apply to it because MANUAL calculations aren’t divinely inspired. For the sake of simplicity and rudimentary clarity. The SIMPLE , NON-magic PRINCIPLE & INTEREST calculations are as followed: Outstanding Unpaid Principal = $100,000.oo Fixed Interest Rate= 0.06 aka 6% Loan Term=360 maths…aka 30-yrs. FIRST INTEREST PAYMENT = $500.oo calculated as such-$100,000.oo multiplied by 6%[0.06] equals $6000.oo then divided by 12. FIRST PRINCIPAL PAYMENT= $277.77. calculated as such-$100,000.oo divided by 12 equals $8333.33333 then divided by the TERM OF THE LOAN…aka 30yrs..equals $277.777778. Simple arithmetic !!!! , no magic macros, no complex calculations, no complicated formula!!!! ALL MANUAL CALCULATIONS minus the FRAUD!!!!

[@goodsno1g]

That's what I'm trying to understand if 6%interest of 100k annual is owed how is the interest more than principal that we expect to see reduced at the amount we owe monthly

[@The.Legends.c]

The fact that 2 dollars are intreast 0.5% on 599.95 cos it's the last month each month you pay 0m5% is 2-3 usd

[@vigneshsivashankar156]

That is the annuity calculated from the principal amount, interest rate, and the loan period. You can look up the formula and calculate it.

[@TomB-op2rg]

Thanks you for the explanation, what is the formula / how do you find payment=599.99$?

[@RealEstateFinanceAcademy]

Calculating a loan payment is an advanced process. Check out my FREE “Know Your Numbers Financial Analysis Crash Course” and you’ll learn how to do that in just a few minutes. The link is in the description, too. ( www.realestatefinanceacademy.com/finance-prerequisite )

[@Kojiros7th]

Thank you sir for helping me understand my student loan statements. Very Appreciated

[@RealEstateFinanceAcademy]

You are most welcome. Happy to help! - Trevor

[@harleydad1975]

That really made it make sense to me. Now I'm trying to figure out if you're writing backwards 😮

[@RealEstateFinanceAcademy]

Glad it was helpful! - Trevor

[@JmJmmmmm]

​@@RealEstateFinanceAcademyhi. I still don't understand how the 99-55 came about. Do explain further. Thanks

[@loulalucille8946]

Thank you for making such a complicated process be so easily understandable!

[@RealEstateFinanceAcademy]

Glad it was helpful! - Trevor

[@SunShine_sublime]

You're so good. Your video is the only one that gives me so much clarity. Thank you so much.

[@RealEstateFinanceAcademy]

Thank you for the kind words. I’m glad it was helpful! - Trevor

[@sahilchoudhary7155]

Thank u sir so much as a banker it was much needed information

[@MohammedAfzal-d2b]

What a precise explanation! Much appreciated!1

[@RealEstateFinanceAcademy]

Glad it was helpful! - Trevor

[@germanium1872]

Great video. I believe they don’t teach this in school, because it’s in their best interest for us to not know this.

[@RealEstateFinanceAcademy]

Very true! Thank you for the nice words. - Trevor

[@RTX-mz3rg]

Best explanation on youtube.

[@RealEstateFinanceAcademy]

Thank you! Glad you think so! - Trevor

[@mansfieldfamily5389]

Thank you for making this so clear and simple!

[@RealEstateFinanceAcademy]

Glad it was helpful! - Trevor

[@lidig3636]

Should I include the points to the principal? Let's say 200,000 plus 3% of points fee, so I have 206,000 as principal?

[@RealEstateFinanceAcademy]

Not if the points are discounted from the loan amount. Check with your lender. Typically they will pay the points from your loan, so you owe $200k, but they only disburse $194k… BTW, three points is a lot for most loans. Is it a hard-money loan? If it’s a conventional loan, you’re probably being overcharged. Hope that helps! - Trevor

[@Moztreet]

Thanks for being very clear

[@RealEstateFinanceAcademy]

Happy to help! - Trevor

[@nicolerobinson3258]

Thank you! I couldn’t figure this out…your explanation was so easy to follow ❤

[@RealEstateFinanceAcademy]

Glad it helped! - Trevor

[@cateyelizabeth85]

Does this only apply to mortgages or is this the same for personal loans?

[@RealEstateFinanceAcademy]

All loans, except for the rare ‘simple interest’ loan. But almost all loans are compound interest loans.

[@royer7266]

So when you pay off that principle early what happens to the interest rate? Like if you owe 10,000 and instead of 140 a month with like 90 dollars interest, if I started paying the payment and then 500 a month on the principle, how much interest money would I be paying month to month?

[@nehemiya558]

If you pay more towards the principal, the amount of interest you pay becomes less. The exact amount of interest you pay per month depends on your remaining principal balance. For example if you owe $10,000 and pay $140 per month at a 6% IR, for the first monthly payment $50 goes to interest (.05% of 10,000 is 50) and $90 goes to principal. Next month, you would pay $49.55 to interest (.05% of 9,910 is 49.55) and $90.45 to principal. In the third month you pay $49.10 to interest (.05% of 9,819.55 is 49.55) to principal and $90.90 to principal. However, if you pay $500 per month, for the first monthly payment $50 goes to interest and $450 goes to principal. Then next month, you would pay $47.55 (.05% of 9,550 is 47.55) to interest and $452.25 to principal. In the third month you pay $45.49 to interest (.05% of 9,097.75 is 45.49) and $454.51 to principal. Notice how the monthly interest paid for the $500 monthly payment was lower than that paid in the $140 monthly payment. Furthermore, the monthly interest paid for the $500 payment continues to decrease at a larger rate, because the remaining principal amount is decreasing at a larger rate. The main thing to understand is that larger principal payments result in less interest being paid over time and in the debt being paid off quicker. Hope that explanation helped!

[@RealEstateFinanceAcademy]

@royer7266 - Paying extra principal doesn't affect your interest RATE. But it does change how much interest, in dollars, that you owe because the interest amount is calculated by multiplying the rate * the amount of principal owed. If you pay extra principal, then you owe less interest on your next payment.... Hope this helps! - Trevor

[@thumperliciouz]

Thanks for the info! Broke it down very well!

[@RealEstateFinanceAcademy]

My pleasure. Glad it was helpful. Thanks for the comment! - Trevor

[@pshinkarenko]

Am I the only one that thinks it’s so cool how he can just write backwards with his left hand with cool neon markers?? I’m assuming he’s normally right handed? because he mostly holds with his right but switches to left to write backwards?

[@pixshels]

There will be a glass between tutor and the camera, tutor would write on the glass and after the shooting is complete, the video is flipped. So it appears like the tutor is writing with left hand, but they are actually writing with right hand.

[@pshinkarenko]

@@pixshels that would be smart to do, but someone else asked the question and he replied and said it took a lot of practice. 🤷🏻‍♀️ either way, it looks sick

[@RealEstateFinanceAcademy]

Thank you! - Trevor

[@thinkingoutthebox7253]

Was looking for this comment

[@rohanroy-tv5vf]

exactly what i was looking for. thank you Q. how are you writing on mirror or somthing also are you writting reverse..i am not able to undersatd plz expain the illusion?

[@RealEstateFinanceAcademy]

Glad the video was helpful! I custom-built this studio setup so I could face the camera while teaching. - Trevor

[@soissympa8573]

The monthly 0.5% is derived from the 6% annual interest divided by 12 months.

[@RealEstateFinanceAcademy]

Yes, that's correct. Always use the PERIODIC rate. So for loans that compound monthly, divide the annual rate by 12 months. - Trevor

[@johnspence8141]

yes any annual loan is usually charged monthly, you always take the annual and divide by 12. 0.06/12 = 0.005 = 1/2 percent

[@frankkang8304]

I never understood how loans worked until this video, and now I'm furious. It's horrendous how for half of the period of your loan, you're paying mostly interest, and not the principal! I feel like 6% interest on $100,000 should just be $6,000. I'm curious, if the minimum payment per month was $599.55 and I decided to pay more per month, would that extra payment apply 100% toward the principal?

[@RealEstateFinanceAcademy]

Yes! Check out my free payment calculator download. It will show you how much faster you can pay down your loan if you include extra principal with each payment. Hope that helps! - Trevor

[@winstonrichardson8789]

Only if the loan is amortized loan. Fix loan they kill you with interest. Amortized loan the more you pay the better. Once you pay the principal you do not have to pay the interest. Eg $100,000.00 loan 14.5% monthly for 30 years $1208.33 interest. Principal 16.23. ( Have $200.00÷16.23 =12.322 you then save 12 months interest; $1,224.56×12=$14,694.72. only on an amortizing loan it you get the bank to give You.) We only dieing for lack of knowledge. But you did not ask me. Exactly you not a mind reader to know of me. ❤❤❤❤❤ now you know so put it to good use😅

[@dizzitoast]

Are you writing backwards? Very impressive presentation!

[@RealEstateFinanceAcademy]

Thank you!

[@JasmineWay]

+1 I was trying to figure out how is this video recoded, is he writing backwards???

[@andretatesIII]

I’m just impressed this guy can write backwards!

[@justjackie4373]

Can you do one for auto loan ? Principal payments I've been looking can't find a good video

[@RealEstateFinanceAcademy]

Hi Jackie. Sorry for the slow reply. Thank you for watching. This video applies to Auto Loans, as well… I created a simple loan payoff calculator that should work for you, and it is free for anyone to use or share. You can check it out here: docs.google.com/spreadsheets/d/14I64LhszNnvlXmbMCopV3nFBstMgQIdfSOGXOVVN3ds/edit Please let me know if you have any more questions! - Trevor

[@Ezekiel336]

How did you determine 6% interest I half a percent? What would be a fair interest/principle ratio for $370K mortgage at 7.375%?

[@RealEstateFinanceAcademy]

6% per year divided by 12 months equals 1/2% per month. The borrower pays 0.5% interest on the outstanding balance each month. Regarding your second question, in order to do that, you need to understand how to calculate a loan payment. Check out my 'Know Your Numbers' course here: www.realestatefinanceacademy.com/finance-prerequisite

[@charliecorrea7133]

So what is the final cost of the loan out of pocket at the end of the 30years?

[@carlos_al]

215k??? what do you think about it?

[@nabeehamaysun7086]

Thank you for this. I had a quick question. Why is the half percent interest $500, how did you come to that number. Thank you again!

[@shivampatel5989]

Loan Amount(100000) * (0.06) Interest Rate = 6000 Annual amount/12 = $500(First Month) Rest months are being calculated with the new Balance so 100000 - (99.55) principal = 99900.45 for second month balance

[@RealEstateFinanceAcademy]

Interest is compounded monthly, so 12 times per year. 6% annual interest is 0.5% per month. Hope that helps! - Trevor

[@loganshanklin]

@@shivampatel5989I understand everything, but where is the $99.55 coming from?

[@Nicholasjames1234]

I’m not sure what I’m getting confused about currently but I’m doing the 6% as sort of a sales tax. In my mind I’m thinking the total would be $106,000 instead of $215,838. What part am I not understanding

[@RealEstateFinanceAcademy]

Hi Nicholas. Your interest is 6% per year, times your unpaid principal balance, (compounded and paid monthly, so each month your interest expense is your balance times 6% divided by 12). So if you didn’t pay any principal down, then your interest would be $500 per month, or $6000 per year. Feel free to elaborate on your question if you need more help. - Trevor

[@berrryred]

Hey there, why can’t be the principal be 100,000 devided by 360 (months)? Why does the principal have to change every month?

[@jeannettedickson3646]

Thank you for explaining that!❤

[@lespaulguitarist92]

So if you already made 50-75% of the payments as schedule.. it will be pointless to start making additional payments or pay it off in full because the bank already got almost all of the interests money off from you?? The point of making extra payments or paying it off early is to reduce the amount of money paid to interests but if the bank almost got the interests money entirely by the halfway or 3/4 mark, might as well just ride out the loan term? Even at the start of the loan, any extra payments i made is being taken to pay interests and the bank doesn't allow any extra payments to go into principal only.

[@THExONExMEXICAN]

Are we all going to ignore how perfectly he wrote backwards?!

[@DrGriff2000]

How did you come to this math? How is the formula done?

[@RealEstateFinanceAcademy]

It’s a simple Loan Amortization calculation using the Time Value of Money. It’s how all loan payments are calculated. Check the link for the free course to learn how to do it in just a few minutes. 😉👍🏻 - Trevor

[@quickwitted26111]

What if we change numbers of year does it make any difference

[@ed0384]

How do you calculate a payment loan of €1500M with interest 5.5% in 25 years. How much would you pay each year?

[@rurukaba]

I just bought a truck.. I've made 4 on time payments and i checked my balance. It's the same as when i started! My payments have been going to the interest only!?

[@RealEstateFinanceAcademy]

Most likely, yes. Check your statements. If they are offering you a choice of different payments and you are paying the minimum, then chances are that you're paying interest only. Also, if you have a variable-rate auto loan, that may have an impact, as well. Hope this helps. - Trevor

[@CITV08]

Can you do a video on what happens to the extra amount when you pay back more than the agreed $599.55 per month e.g. if you pay back $700 per month.

[@RealEstateFinanceAcademy]

You can learn how to do that in my free course here: learn.realestatefinanceacademy.com/finance-prerequisite … OR if you just want the answer, grab the free spreadsheet in the description. Hope that helps! - Trevor

[@hardik2292]

Thank you for this video, however, is there any way to find the 18th-month payment details without actually doing the 17 payment calculations?

[@RealEstateFinanceAcademy]

Yes! It takes a few minutes to learn, but you can do that here: learn.realestatefinanceacademy.com/finance-prerequisite Hope that helps! - Trevor

[@25_mansikothari26]

How did u reach the sum 599 at the start

[@RealEstateFinanceAcademy]

You can learn how do that in my free course here: learn.realestatefinanceacademy.com/finance-prerequisite - Trevor

[@SUPER_JAVI]

So, out of this $100k loan, how much interest would the person have paid in the 360 months?

[@RealEstateFinanceAcademy]

360 payments times $599.55 equals $215,838 total amount paid. $100,000 of that was paying back the principal, and the rest was interest payments, totaling $115,838. A lot of you are curious about the effect of paying extra principal. Download the spreadsheet (link in the description) for a free, calculator, worksheet, or if you really want to learn the mechanics of principal and interest on mortgage loans, check out my “pay what you want” financial calculator course. Hope that helps! - Trevor

[@SUPER_JAVI]

@@RealEstateFinanceAcademy thanks. But, whenever I pay extra money on the personal loan I owe, the bank just takes it as payment for the next month; nothing goes to the principal.. so, is it even worth paying extra each month?

[@RealEstateFinanceAcademy]

First, you should ALWAYS add a note instructing them to apply your extra payment to “principal only”. Every loan is different and the loan servicer (who processes your payments) may not know what that extra payment is intended for. Also, depending on what kind of loan you have, you need to read the terms of your promissory note to see how they treat “prepayment” or “additional principal payments” to make sure you don’t incur any prepayment penalties. Let me know if you have more questions. Happy to help! - Trevor

[@SUPER_JAVI]

@@RealEstateFinanceAcademy Thanks for replying 🙏 👍

[@leonardohernandez8400]

So we paid almost $80,000 in interest at the end? Almost double of what the what was borrowed.

[@mrs.kjackson9301]

I have a question! Why does the interest goes down but the principal goes up???

[@RealEstateFinanceAcademy]

The payment is constant, and interest is only charged on how much is left on the loan balance. Each payment is enough to cover the interest, plus a portion of the principal (factored by an amortization table that calculates exactly how much needs to be paid to pay the entire loan down to zero within the designated timeframe.) Since the principal loan balance goes down a little bit with each payment, so does the amount of interest owed with each payment. After the interest gets paid with each payment, whatever is left over goes toward the principal balance. So over time, more of each payment gets applied towards principal and less is applied toward interest. Follow the numbers at the end of the lesson and hopefully it will make sense. Good luck! - Trevor

[@gregorydaley9076]

The ANSWER to your exceedingly intelligent and insightful question is being answered in FEDERAL court as we speak … YOU on the other hand, is the ONLY person of less than 5 persons who have EVER asked that question with any sense of true inquiry or serious intelligence. Soon you will be able to make legal inquiry about YOUR question and be able to get THE answer.

[@sikoticjaux]

Your principal goes down monthly on a fixed rate mortgage, the payment towards interest starts very high and the payment towards principal starts very low. The total payment (interest + principal) stays the same til end of term/payoff. Extra principal payments will decrease the amount of interest you pay monthly and over all and will shorten the lifetime of the loan. I feel like saying I pay 6 percent on a $100k house should mean at end of loan you paid $106k. How they charge interest though is you pay 6 percent on roughly 100k the first year, 6 percent on slightly less than 100k the next year and a little less the next year. So it's 6 percent yearly of remaining balance plus the principal to pay it off over 30 years or however many years of loan terms.

[@JustARegOleHoodNiqqa]

This video helped a lot

[@stripecatflippangitnamecha8721]

how long will it take 7 percent interest 30 years. $112,500 dollars 30 years. but I will pay extra $500 dollars towards the principal, can I calculate that, how long will it take to paid off, thank you

[@amirbinmumtaz4390]

Would you please make a video on HOA, Payoff, and welcome package interms of seller ,buyer and listing agent ..

[@RealEstateFinanceAcademy]

Hi Amir. Thank you for your comment! We are adding your requests to the list! - Trevor

[@johnspence8141]

Thats the problem with loans. People take the amount they borrowed and multiply it by the % of the loan. If you under pay your loan, it can even grow over time, meaning you'll never catch up. Credit card debt is deadly. Always look for max payments (some car dealerships put a cap on the amount of interest you will pay). Don't sign til you do some math or find someone to do it for you. There are good formulas for Amortization online. Once you figure out your monthly payments multiply it by the number of years/months you'll be paying that loan, find the total, and subtract the original price. This is how much you are paying in interest on TOP of that car. Then take that and divide it by the original price. Multiply by 100. That is the ACTUAL percentage you paid on top of the original price. A 6% loan over a long time can result in 50% of the original price, and the smaller the percentage you are paying off, the longer that loan will grow.

[@odile2011]

I just realized that by buying a 600k homes, over 30 years with 5 percent interest, I'll be paying over a million. what's your advice to pay only 30000 which is really 5 percent of 600k?

[@decentgamer4728]

But why they take more interest amount instead of principle amount is it a strategy???

[@ld7096]

How can you calculate when it’s half interest and half principal

[@RealEstateFinanceAcademy]

If you’re willing to invest 30-60 min. to learn, here’s the free course: learn.realestatefinanceacademy.com/finance-prerequisite

[@Aikynbreusov]

How did he get the $599.55???? How did he calculate this amount???

[@RealEstateFinanceAcademy]

You can learn how to do that here: www.realestatefinanceacademy.com/finance-prerequisite - Trevor

[@simonlarson7230]

Yes but ... how did you arrive at the 599?

[@amirbinmumtaz4390]

Glad you are making videos

[@RealEstateFinanceAcademy]

Thank you!

[@roccodimiccio5199]

My bank is showing accrued interest on top of my mortgage payments? why would they be charging extra interest on payments that are already covering principal and interest?

[@RealEstateFinanceAcademy]

If you have any late fees or other charges that haven’t been paid, they may be adding interest to that. Make sure you look closely at your statement. All fees and outstanding interest must be paid before anything is applied to principal. Hope that helps. - Trevor

[@masonmartin6982]

Is this included with Tax? Do you have to pay a tax along with it

[@RealEstateFinanceAcademy]

Hi. Thanks for your question. No, this is not related to taxes. Taxes are paid to government agencies, while principal & interest are paid to the lender; however, the interest portion of your payment is typically a tax deductible expense to the borrower (and taxable income to the lender.) Hope that helps! - Trevor

[@sikoticjaux]

So to simplify on a 30 year loan with 6 percent fixed interest rate you are 6 percent in interest of your remaining balance yearly. The monthly principal drops monthly very slowly in beginning and quicker at end of term. Thats why they say you pay a lot of interest early in loans. They want to get more early with this conplex formula. Seems a bit scammy but all loans seem to work this way. Best thing you can do is get lowest interest rate to start and if you can manage it pay extra each month to shorten the term and save on interest.

[@henryjubeda7617]

It is scammy, that's the point. All consumer loans push up the prices for other market participants and in the case of housing, this forces entire populations into indentured servitude on a depreciating asset. The initial is higher because that's where the risk is highest to the lender in the model, though really the debt is created from nothing.

[@danishhussain3857]

This is very useful, but you know you can slow down a bit, as it involves a lot of numbers!! And many people don’t understand numbers as fast as you do..

[@RealEstateFinanceAcademy]

Hi. Thank you very much for that comment. I always think people would prefer that I edit out the pauses/breaks, because they can just pause the video where necessary, but it’s nice to get actual feedback. How would you recommend that I structure them? Just more time in between sentences & concepts? More detailed explanations? I am constantly looking to make these videos more helpful and easier to digest, so I sincerely appreciate the input! Thank you! - Trevor

[@scotta4623]

@@RealEstateFinanceAcademy Not to be a contrarian but I liked the speed you went, I paused or replayed when there was a section I needed to process further in my head. Not a fan of long drawn out explanations, Great video

[@anthonyfaucy2761]

​@@RealEstateFinanceAcademyIgnore him. Your speed was fine

[@edgarc.3433]

But say the interest rate is 13% per year. Do I divide that by 12 to get what's charged each month? I was assuming multiply the loan by the percentage and that's the interest rate per year. Also, Im surprised you're able to write backwards lol

[@carlos_al]

i would think 6% interest rate is a good deal for a 100k loan. how do you end up paying 215K?? is this a good deal? someone explain please

[@1992loran]

when do you realize the 6% inteest? In the 30th year?

[@RealEstateFinanceAcademy]

I don’t understand the question… can you elaborate? - Trevor

[@gravitycore1]

I hate how my accounting & Finance classes couldn’t explain this concept this easy

[@lingofearth2786]

Maybe mine is so hard to judge because I pay earlier than the monthly due date.. some times by a day, some times by a week

[@RealEstateFinanceAcademy]

Shouldn’t matter, because most loans don’t adjust more often than monthly. But that’s generally speaking, not true in every case. Definitely read the fine print on your loan terms. Feel free to ask questions and I’m happy to coach you through it. - Trevor

[@87jessicarob]

This video helped me out so much...thank you

[@RealEstateFinanceAcademy]

Thank you! Happy to hear that it helped! - Trevor

[@alexrosales8212]

How did he get the 599 montly payment?

[@RealEstateFinanceAcademy]

You can learn how to do that in my free course here: learn.realestatefinanceacademy.com/finance-prerequisite - Trevor

[@donalddifuntorum5200]

Good explanation!

[@RealEstateFinanceAcademy]

Thanks! Happy to help! - Trevor

[@junpauljumalon9843]

How to right at the mirror that way?

[@silvererain]

Shouldn't 6% of $100,000 be $6000? I don't understand where you get 500 at 1:40

[@RealEstateFinanceAcademy]

$6000 per year = $500 per month Hope that helps! - Trevor

[@silvererain]

@@RealEstateFinanceAcademy Ah I see thanks for that

[@JuanPablo_2200]

Very good video! 👍

[@RealEstateFinanceAcademy]

Thank you, Juan!

[@bluesapphire7548]

To the point! Great job!

[@living_in_fullidentity3417]

thanks this helped me a lot

[@RealEstateFinanceAcademy]

Glad it helped! Here’s the free course, if you want to learn more. - Trevor learn.realestatefinanceacademy.com/finance-prerequisite

[@MuhammadRezqyGhifari]

How to applicate on simple interest?

[@RealEstateFinanceAcademy]

I don’t understand the question… can you elaborate? - Trevor

[@chrisbourne3543]

If there’s a minimum wage paid to the federal government will go variable to to a maximum fixed rate

[@bobbyhill7312]

6% of 100k is only $6k . However , $599.55 a Month for 30 years equates to $215,838 . Which means it’s literally like 115% interest . If it was 6% interest you would only pay $106k total . Is anyone ever told , “ hey just so you know this is actually a 115% loan and we are telling you it a 6% loan “ . I don’t understand the interest rate thing at all … 6% of 100 is 6 . Not 215 . You end up paying $215,838 on a $100k house while being told it’s only 6% . I don’t understand how this is fair or how this works .

[@RealEstateFinanceAcademy]

Interest rates are always quoted “per year”. So in this case, each year the borrower pays 6% on any amount owed that is still outstanding, broken up into 12 monthly payments.

[@bobbyhill7312]

You said . 6% is half a percent of interest. What does that mean . I truly want to understand how this all works and I feel like a lot of things are glossed over . . I need it explained to me like im young and not intelligent. Assume I don’t know what anything is or what anything means . I honestly wonder if these loans are made to be confusing to trick the average person . I think it’s tricking people. If you’re making someone pay you 215k for a 100k house , just call it a 115% loan . But That looks and sounds bad compared to saying it’s only 6% . So why wouldn’t they invent a confusing convoluted financial instrument to steer people away from the fact they are being charged 115% and not 6%

[@alidiaamkalaf653]

​@@bobbyhill7312half a percent each month, 12 month a year, so this is a 6 percent per year, just devide the interest rate by 12 to determine the monthly interest because the interest rate quoted here is annual interest rate

[@solok304]

First I was here to learn...but now Im wondering how he writes in inverted way to the camera...great presentation

[@the.21st.century]

THANK YOU

[@shinanguo4197]

But how did you come up with 599.55 as the constant monthly payment?

[@RealEstateFinanceAcademy]

Hi there. I have lessons on how to calculate loan payments or you can use any online payment calculator. It’s pretty easy once you know how to use a financial calculator. (I have free lessons on that, as well.) Let me know if you need more guidance. I’m happy to help. - Trevor

[@MAYONNAISEMOOSE]

@@RealEstateFinanceAcademy But how did you come up with 599.55 as the constant monthly payment?

[@RealEstateFinanceAcademy]

With a financial calculator. Check out the free course in the description to learn how to do that.

[@beatitnoww91]

That was well put together More of same

[@RealEstateFinanceAcademy]

Thank you! - Trevor

[@abhishekvanenooru2869]

nobody in my school thought me this thank you uncle

[@pixshels]

Thank you so much, this gave me a perfect understanding. :)

[@RealEstateFinanceAcademy]

Thank you for your comment! - Trevor

[@VisionofTomo]

Well I guess if I pay off principal only that should reduce the amount of interest significantly

[@queenofdivas5494]

How did you get 599.55/month

[@RealEstateFinanceAcademy]

Calculating a loan payment can only be done using a financial calculator (or a spreadsheet or amortization table). Don’t forget that because mortgage loans are monthly, the number of periods, and the periodic interest rate need to be input as monthly. Here are the inputs: Number of periods (n) = 360 months (30 years) Periodic Interest rate (i) = 0.5% (6%/12) Loan amount (PV) = $100,000 Future Value (FV) = $0 (fully amortizing) Solve for Payment (PMT) = -$599.55 Hope this helps! Let me know if you have more questions. I have other lessons about how to use a financial calculator. - Trevor

[@queenofdivas5494]

@@RealEstateFinanceAcademy thank you!

[@hepler228]

how do you get 599. at the beginning

[@RealEstateFinanceAcademy]

Check out my video here: How to Calculate a Loan Payment with a Financial Calculator or Spreadsheet kzbin.info/www/bejne/qIS4ZICNo7OFm7M Or I also have some courses on my website if you need to learn the entire process. Hope this helps! - Trevor

[@GodxMischief]

So interest is just as criminal as taxation

[@JuanGonzales-yq5cw]

Thank you so much i was over here thinking principal and interest was added ontop of your monthly payment. But thanks to you know now i know principal and intrest is then monthly payment lol

[@mattfischer1]

How does it seem like he’s writing backwards?

[@RealEstateFinanceAcademy]

What lessons or concepts would you like me to teach you? Tell me below! - Trevor

[@Permabull_Moonman]

On a variable rate loan against ones assets in perpetuity. Is it better to pay just interest or should one pay interest plus principle? If one payment is close to 1,000 a month. What would you suggest one pay per month?

[@RealEstateFinanceAcademy]

Need more info. Provide some detail and let’s work through it. 👍🏻 Variable rate loans, or adjustable rate loans, are a way for the lender to transfer much of the risk to the borrower. For long-term debt, fixed rate is always better. For short term debt, it’s not as important.

[@RealEstateFinanceAcademy]

kzbin.info/www/bejne/aaaZqpJ_apyib7s

[@Permabull_Moonman]

@@RealEstateFinanceAcademy I performed well in the stock market this year. I took a pledged asset line, for my down payment, at 4% plus libor. My holdings will be long term gains after February and I can start selling off if I choose to . Allowing me to pay off my pledged asset loan. My lender has given me the option to just pay interest or interest and principle. Would you just pay the interest or would you suggest interest plus principle. My interest only off 1,000 but I’m thinking I should pay 2,000 to chip away at the loan. I see the market rallying into next year. I don’t think the FED will taper until the middle of next year. I see this loan as short term and I will liquidate come spring to pay off the loan and pay long term capital gains. I have the option to fix the rate at any time for no fee but then it’s either a 15 or 30 year term. Then again I know I’ll beat the 4% and could keep the loan forever and have more working capitol.

[@Permabull_Moonman]

I don’t have kids and if I keep the loan long term, I’ll delay capital gains taxes indefinitely. I’m a natural bull with a contrarian strategy and I’m using 50% of the loan amount that I have access to. My lender will loan 70 cents on the dollar. Outside of a 60% correction, my strategy should be safe.

[@BestGlass-xi8cw]

That’s right if you get a home loan for 30years 7% interest in paying more than a double of the loan amount

[@ThomasRaad]

What i want to know is how he made this video with the marker and all that cool stuff. PLEASE id love to know 🤣

[@munchingmakenna5776]

6 percent of 100,000 is 6,000. So why would paying 600 a month for 12 months times 30 years cost 215,000?

[@RealEstateFinanceAcademy]

Because in the beginning, only a small amount of principal is paid with each payment. Interest is charged at 1/2% per month (x12 = 6% per year) on the remaining principal balance every month. The amortization schedule calculates how much principal needs to be paid, in addition to the interest, each month to pay the loan down to $0 on the 360th payment. Hope that helps. Let me know if you have more questions. - Trevor