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How Do Principal Payments Work On A Home Mortgage?

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Too many Americans stay in debt longer than necessary simply because they don’t understand the relationship between principal payments and simple interest. Figure out your mortgage options here: https://goo.gl/1up9dK

SUMMARY

In this video, Meagan from Bakersfield, California, calls Dave to talk about principal payments on her home mortgage. She is currently in Baby Step 2—paying off her debts using the debt snowball method. As she begins to think about her mortgage, she asks Dave, “How do principal payments work?”

Dave breaks it down with a simple interest calculation. Take the interest rate of your mortgage, divide it by 12 months, and then multiply it by the outstanding balance that month. That will give you the interest charged for that specific month. The rest of your payment goes to principal.

To break it down further, Dave gives a simple interest calculation example. He explains that your mortgage payment will stay the same each month, but as you pay more on the loan, you’ll begin to see more of each payment going toward principal and less going toward interest.

This simple interest calculation is a basic way to understand how principal payments work and outlines a way to pay off your mortgage fast!

RESOURCES

Want to estimate your monthly mortgage payment? Check out our Mortgage Calculator: https://www.daveramsey.com/mortgage-calculator

To learn more about the Baby Steps and how you can start knocking out your debt, visit our site: https://www.daveramsey.com/baby-steps

Have other questions about mortgages? We’ve answered them here: https://www.daveramsey.com/blog/mortgage-questions

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