You have a loan for $150,000 at 5% on a 30-year mortgage. You plan to pay off your loan in 10 years.?

Do you want your loan to be figured using the Rule of 78 or the Unpaid Principle Balance Rule?

2 Answers

  • 8 years ago
    Best Answer

    Unpaid Principle Balance Rule.

    The reason, is because the "Rule of 78" automatically calculates the interest up front, and the complete payment includes the interest + principle for 30 years. Whereas, if you use the Unpaid Principle Balance Rule, as you pay down the principle early (in 10 years instead of 30), the interest gets smaller and smaller.

    You'll note that the Principle for either one of the loans isn't different, simply the amount of interest that is paid.

    Here's some additional information:

  • ?
    Lv 4
    3 years ago

    it is somewhat risky. enable's say you're procuring a $200,000 homestead. If, 5 years from now, actual property isn't as high priced, and you're able to basically sell your homestead for $a hundred and fifty,000, you nevertheless owe $200,000 on the homestead (minus your down charge, which probable isn't lots). you're actually caught. you are able to no longer sell the homestead without paying off the interior maximum loan, which will require an further $50,000, or conserving financial ruin. Ouch. What occurs to the money you pay the 1st 5 years? somebody publish $200,000 so which you have a place to stay. you're paying interest to that somebody to declare "thank you for procuring my $200,000 homestead!" you are able to help your self by paying better than the mandatory charge (in spite of the undeniable fact that verify your own loan to make beneficial that extra quantities flow to lowering critical - it is significant!) That way, your own loan is going down in the process the 1st 5 3 hundred and sixty 5 days (which it won't in case you basically make interest money) to that end providing you with further flexibility might desire to the actual property industry drop, which it would!

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