Simple Interest Mortgages Are Not So Simple

When students sit there like zombies, teachers wonder whether all their efforts are in vain. After graduation, though, they feel more confident about the lessons they imparted that will stay with their students forever. The English teachers who introduced students to the Gilgamesh epic quietly holding their heads high, knowing they have made a difference, even as their families make a display of being unimpressed. The teachers who get a round of applause at social gatherings where most people are not in the education sector are the math teachers who taught their students the difference between simple interest and compound interest. The look on students’ faces is priceless when they calculate successive payments on the same principal amount with simple interest, and then with compound interest. The teachers tell the students to imagine these amounts as debts they owe and then as the balances of their savings accounts. Therefore, when people hear the phrase “simple interest mortgage,” they are imagining a windfall beyond belief, a mortgage loan that does not charge compound interest. Unfortunately, that is not what a simple interest mortgage is. Simple interest mortgages charge compound interest; they just calculate it a little bit differently than most mortgage loans do. If you are in a jam with your home mortgage, contact a Jupiter foreclosure defense lawyer.

The Annual Interest Rate on Your Mortgage Loan Does Not Tell the Whole Story

When you lock in an interest rate for your loan as you are about to close on the purchase of your home, this is the amount of interest that you pay annually. These days, you are lucky to get an interest rate of six percent. Of course, this is the amount of interest that you pay annually, but you make mortgage payments more often than once a year, and the lender assesses compound interest every pay period, not once per year.

With most mortgage loans, the lender assesses interest every month, and payments are due every month. This means that, every month, the lender adds 0.5 percent of the outstanding amount, including principal and any interest that has already accrued, to your balance. With a simple interest loan, the lender assesses interest every day, which means that approximately 0.016 percent gets added to your outstanding balance every day.

Simple Interest Mortgages Can Make Your Monthly Housing Costs Cheaper or More Expensive

If you make a payment every month with a simple interest mortgage, you will pay more interest over the term of the loan, if your loan only assessed interest every month. Simple interest mortgages work to your advantage if you make more than one payment per month. The ideal candidate for a simple interest mortgage is someone who gets paid weekly or biweekly and makes a payment toward the mortgage from every paycheck.

Work With a Debt Lawyer About Saving Money on Your Home Mortgage

A South Florida debt lawyer can help you free up funds to pay your home mortgage.  Contact Nowack & Olson, PLLC in Boca Raton, Florida to discuss your case.

Source:

investopedia.com/terms/s/simple_interest_mortgage.asp