Investing

Getting ready to buy a house

But remember, only a portion of your regular monthly payment goes to principal (your original loan amount), with the remainder going to taxes, interest, and homeowners insurance. For example, let’s say you purchased a house 2 years ago for $175,000—putting down $25,000 and taking a loan for $150,000. Since then, you’ve made regular monthly payments to your mortgage company totaling $20,000.

However, not all of your $20,000 was applied to your principal. It’s likely that only one-quarter of your payments—$5,000—was applied to your original loan amount, while the remaining three-quarters went to taxes, interest, and homeowners insurance.

If you want to increase your equity and pay off your mortgage early, consider making an extra principal-only payment either monthly or annually. But check with your lender first to make sure you won’t be charged a prepayment penalty.

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