Total Mortgage Payments 2 to 3 Times More than Principal

Is it normal for the total payments to be over twice as much as the amount financed on a 30 year fixed?

4 Answers

You must be looking at that wonderful piece of government required disclosure called the Truth in Lending form.

Yes, the total payments on a 30 year fixed note will typically be at least double the original loan balance.

I ran some numbers, and the rate that comes closest to being exactly double is 5.25%. At 5.25%, you will pay 199% of the original loan balance.

At today’s (9/2010) published rate of 4.875%, you’ll pay 191%.  View current rates.

The fact of the matter however, is that the chance that you’ll actually make all 360 payments is pretty low. The average loan stays on the books for 5-7 years. That means that within those 5-7 years, most people refinance to get a better rate, refinance to take cash out, or they sell their home. So those totals aren’t very useful.

A good loan officer will help you evaluate the total closing costs, interest rate, and payment to help you decide if the 30 year fixed is your best loan option, or if you might be better suited in a different product.

If your total payments are only twice the principal, you have gotten a very good rate, historically - one well under 6%. Generally, for single digit interest rates, if a borrower makes only the minimum payment for 30 years, he or she will pay between 2 and 3 times principal in total payments over the life of the loan.

By making a small extra contribution to principal each month, however, it is possible to drastically alter this figure. A borrower that takes out a 30 year fixed mortgage of $200,000 at 6% and makes minimum payments (about 1200) will pay about $432,000 in total payments over 30 years. BUT . . . if he or she adds just $100 a month to the payments, beginning with the first one, that same loan will be paid off in 24.5 years - saving about $50,000 in interest. (!)

There are many free, independent mortgage calculators online to help you take charge of the amortization and interest paid on your loan.

The answer is, "it depends,"  but either wayt this is a depressing topic.  The word mortgage translates into the word death grip in Latin for a reason.

If you evaluate a 30 year fixed amortization at any loan amount over $20,000 and look at the total payment of principal and interest over the live fo the loan, you'll see that an interest rate of 5.25% or less will keep the total payments over the life of the loan under two times the amount of the principal balance.  If the rate of interest being charged is 5.375% or higher, the total payments will exceed two times the amount of the principal balance.

At the risk of making a mortgage sound really scary, that's probably not unrealistic. Let me start by giving an example. A loan amount of $250,000 at 4.5% interest for 30 years (360 monthly payments) will have 360 payments of $1,266.71 which will add up to $456,015.60 over the 30 year period.

This assumes that no excess or additional payments are made through the life of the loan. This is exactly why extra principal reductions early in the loan make such a difference. For each $1 that is paid off early, interest charges are not incurred on that $1 through the life of the loan. Again an example: On the same loan above, If you paid $1270 / month ($$3.29 extra) from the 1st payment forward, the total of all payments would be $454,713 and the loan would pay off in roughly 29 years, 10 months and a little change saving you around $2,000.

The average mortgage in the US is paid off in 6 years either by refinancing or by selling the property. When you are comparing mortgages it's improtant that you look at the costs and duration you actually expect to have the loan. You also want to make sure that the loan does not have a pre-payment penalty.  

Good question. A truly informed decision is the right decision where Mortgages are concerned.

I hope this is helpful