HOMELOANS
BY
Reducing Payment Mortgages
Weekly,
fortnightly or monthly payments start out at one amount but then reduce by
the same small amount each payment so that over time the payment amount
becomes quite small. The payment may change from time to time if interest
rates change.
EXAMPLE:
A
mortgage for $120,000 at an interest rate of 6% over a term of 25 years
would require the first monthly payment to be $1,011.50. Each monthly payment after that would reduce by $2.04 so that
after 10 years, for example, the payment would be reduced to $767. The
total interest cost over the term, assuming no interest rate change, would
be $92,000.
BENEFITS:
•
Regular
repayment amount reduces at each payment cycle.
•
Total
interest costs over the full loan term are lower.
•
Well
suited to dual income households where children may cut one income off
later on.
DISADVANTAGES
•
Initial
regular payments are higher than Table loan basis.