Question 1

What is the difference between equal payment and equal principal?

Accepted Answer

Equal payment (amortization) has fixed monthly payments throughout the loan term. Equal principal has decreasing payments - you pay the same principal amount each month plus decreasing interest. Equal principal saves about 10-20% in total interest but has higher initial payments.

Question 2

How much can I save with early repayment?

Accepted Answer

Early repayment in the first 1/3 of your loan term can save significant interest. For a $300,000 30-year mortgage at 6.5%, a $50,000 early payment at month 12 can save approximately $90,000 in interest and reduce the term by about 10 years.

Question 3

Should I choose fixed or adjustable rate mortgage?

Accepted Answer

Fixed rate provides payment stability and protects against rate increases. Adjustable rate (ARM) typically starts lower but can increase. Choose fixed if you plan to stay long-term or prefer predictable payments. ARM may suit short-term owners who can handle payment fluctuation.

Question 4

What percentage of my income should go to mortgage?

Accepted Answer

Most lenders recommend spending no more than 28% of gross monthly income on mortgage payments, and no more than 36% on total debt payments including mortgage, car loans, and credit cards. This helps ensure affordable payments and approval chances.

Question 5

How does loan term affect total interest?

Accepted Answer

Shorter terms mean higher monthly payments but much lower total interest. A 15-year mortgage at 6.5% on $300,000 has about $85,000 total interest versus $382,000 for a 30-year term. The 15-year saves nearly $300,000 despite higher monthly payments.

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