|
|
Anatomy of a Direct Reduction Mortgage
Direct Reduction Mortgage Analysis
Direct Reduction Mortgage: A mortgage that requires
equal payments of a fixed amount for each period that includes both principal
(loan recapture) and interest. Payments are credited first against
interest on the declining principal balance, so the amount of money credited
to principal gradually increases, while that portion credited to interest
gradually decreases.
EXAMPLE of varying dynamics of a Direct
Reduction Mortgage
Principal: $250,000.00
Term: 30 years
Interest: 7%
Monthly P & I: $1,663.26
#1
Column A = Assume one extra payment per year.
(Extra annual payment of $1,663.26)
Column B = Assume we pay $1,850.00 monthly
instead of the required $1,663.26
| |
Actual
|
A
|
B
|
|
Retirement
|
4/1/33
|
4/1/27
|
7/1/25
|
|
Total Interest Paid
|
$348,772.25
|
$266,651.20
|
$243,810.21
|
|
Savings - Time
|
0
|
72 months
(6 yrs)
|
91 months
(7 1/2 yrs)
|
|
Savings - Interest
|
0
|
$82,121.05
|
$104,962.04
|
|
#2
Results based upon varying terms
|
Term
|
P & I
|
Interest Paid
|
Interest Saved
|
|
30 year
|
$1,663.26
|
$348,772.25
|
N.A.
|
|
25 year
|
$1,766.95
|
$280,084.46
|
$68,687.79
|
|
20 year
|
$1,938.25
|
$215,179.36
|
$133,592.89
|
|
15 year
|
$2,247.07
|
$154,472.72
|
$194,299.53
|
|
#3
Results based upon varying rates
|
Rate
|
P & I
|
Interest Paid
|
Interest Saved
|
|
7 %
|
$1,663.26
|
$348,772.25
|
N.A.
|
|
6 3/4%
|
$1,621.50
|
$333,738.29
|
$15,033.96
|
|
6 1/2%
|
$1,580.17
|
$318,861.22
|
$29,911.03
|
|
6 1/4%
|
$1,539.29
|
$304,145.48
|
$44,626.77
|
|
6 %
|
$1,498.88
|
$289,595.47
|
$59,176.78
|
|
|
|
