Last Mortgage Payment Secrets - Part 2

While more of each payment is applied to principal, the backside of a mortgage is not as glorious as it may seem. There’s a nasty little secret hiding back there that few people ever consider–a sinister side, if you will.

In the sample mortgage we’re reviewing, the buyers are 18.5 years into paying it off when they reach the so-called halfway point, the month where approximately 50% of a single payment goes to interest and 50% to principal. They have paid in $266,202, of which $80,678 has been applied to principal.

Things are going well, according to the bank’s schedule of repayment. The homebuyers still owe nearly $120,000 on the principal of their house, plus the interest they’ll pay in the remaining 17.5 years of their mortgage. It does begin to look like quite a lot, like an overwhelming undertaking.

Ultimately, I want to focus on the very last payment, the one many folks would consider the most exciting payment of all. The last payment holds a disturbing secret.

In the $200,000 home loan we’re looking at, the last payment is only $1,190.29, about $9 less than the normal monthly payment. Of that, a mere $5.92 is interest. On the surface, one might think, “Oh, only $5.92 interest on the last payment! That’s more like it.”