How Do Principal Payments Work on a Home Mortgage?


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IN THIS VIDEO: Dave Ramsey, The Dave Ramsey Show, Financial Peace University, FPU, The Total Money Makeover, Retire Inspired, budget, envelope system, emergency fund, baby steps, radio show, debt freedom, EntreLeadership, mortgage, ELP, daveramsey.com, money, finance, economy, investing, saving, retirement, cash, mutual fund, stock market, business, leadership, credit

29 Replies to “How Do Principal Payments Work on a Home Mortgage?”

  1. 5:27 so true! I've been saying this for the longest time. They don't teach you what you really need to know as you're going through school. no disrespect to Shakespeare or Trigonometry, but teenagers to learn as early as possible about principle vs. interest, balanced budgeting, and interest rates. These are the things that will truly affect them the rest of their lives.

  2. Do car loans work the same way? Say I have a 50k car loan; am I better off saving 50k and paying it off at once, or should I make additional monthly payments to it just like the house?

  3. We keep our monthly amortization schedule for our mortgage printed out and on the fridge. I LOVE crossing out multiple lines every month…just a few more years until we can cross that last line (originally dated for 2042!!!!!) off!

  4. I recall seeing the video that the caller is referencing. The video quickly did not pass the smell test. About halfway through, I was curious how much faster the loan would be repaid if you were to just put every extra dime to the mortgage. I ended up writing an amortization calculator spreadsheet to answer my question, and I recall the difference being significant.

    I am an engineer, and one of the most useful classes in finance that I took was Engineering Economics. I still have the book on my desk, mainly for the present value/future value tables printed in the back. It was all about the time value of money and making decisions based around money, such as whether to purchase a new piece of equipment or to repair the current piece of equipment and what the implications were from a monetary standpoint. Fascinating, though most folks didn't see the applications of the material.

  5. I agree that what is taught in school is not what is used in real life situations. I think basic math , grammar and reading should be emphasized then money management and health and nutrition and maybe some more advanced courses to prepare those going to college.

  6. Dave, You said that paying it weekly or bi weekly wouldn't work because it's calculated once monthly. So is our best option to send in one check for payment and second check in just for principle? Marked in Memo area???

  7. Financial Education is a SCAM in most schools in the united states. They never teach you about principal and interest. Luckily I took accounting, intro to business and personal finance in high school. I became financially literate. But most of my friends never took these class. The school is MAKING students financially dumb and illiterate. Learning Shakespear or some theory is important too but I hope these school will ACTUALLY HELP students to learn some important skills in life.

  8. Why is everyone making this so complicated. Charles givens had a book years ago that stated if u prepay the principal the bank can not charge u interest on that month. You want to do this aggressively at the beginning of the loan. So if ur total payment 1st month was 763 (328- interest) (435- principal) but the 1st month u wrote a check for 763 ( your full payment) and an additional check for 875 marked for principal of the next two months. ( 437 & 438) You could not be charged interest on those two months since u paid the principal in advance. So u saved urself 652 in two months, moving forward you will always be paying ur principal in advance, wiping out the interest. Now this used to be totally legit, not sure if the banksters worked out a deal to prevent this. U should mark the checks specifically principal payment only and the specific month. I've tried to get info on this technique to no avail but I've seen it in several financial books from the 80s

  9. Does this method/calculation apply the same to student loans?

    This really changed my life, I had thought for 2 years now that extra payments ONLY deducted from the principle from the back end of the mortgage – this is huge.

  10. Google have free mortgage calculator on their website, that show what Dave said, best still is you can make a copy to your computer name it, then add in your own figures, there is a link on how to use with a YouTube clip. its not perfect? but its free. I have been using it for three months now, managed to put $4000 extra on principle saving up to two years less interest payments, that's over $7000 saved so long as I keep up my normal payments, just watching the numbers change automatically when you add extra payments, gives you more incentive to save a little, the more you add you can see the numbers of months and years less before you are mortgage free! No I am not getting paid for this recommendation.

  11. 7:49 I think with my bank, I have to pay the normal payment and then after that goes through I can pay a Principal Only payment. If I sent the extra amount on one payment, it takes interest out of the extra payment as well. That's what I was taught, but I'm probably wrong.

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