The reasons for that can be:
i) If your have a conventional fixed-rate or adjustable rate mortgage, and it is really as young as 2 years, it is natural for the balance to reduce insignificantly because of the “leveling” of monthly payments. You can find a more detailed explanation in my article about FRMs; but in short, in early years each monthly payment pays mostly towards the interest. Only in later years the monthly proportion of money paid towards the principal increases and then the reduction of the outstanding balance becomes more noticeable. The principal payment is always a remainder - the total monthly payment minus the interest; and if with a FRM everything is pre-calculated and the monthly amount is set, ARM monthly payments change to meet the new rate and serve, first of all, the interest; the principal gets the residual. Generally, this case presents nothing to worry about.
ii) If the balance is totally unchanged, you probably have an interest-only mortgage, i.e. everything you pay every month is paid towards the interest only.The balance will start to reduce only if you make an extra payment or when the interest-only period is over. For more details on Interest-Only mortgages read here.
First of all, Interest-Only is not a separate mortgage type. It is an option that can be attached to virtually any mortgage repayment plan enriching it with its benefits or disadvantages (or both). Interest-Only has different effect on different plans, but it practically always makes the overall cost of a mortgage higher, as well as brings certain quite pressing issues into the sums to be paid monthly when the interest-only period is over. Always study the advantages you buy at the price thoroughly - they have to be really worth it.
The idea of the Interest-Only option is that your monthly payment pays in fact only the interest. You sort of pay some “salary” to the lender for using his money, but it remains his money anyway, as well as your (still potentially your) home remains his, too. No mortgage is 30 years interest-only nowadays, so eventually you are expected to start paying the principal off - only at that stage you will start to really buy out your home. Read the rest of this article »
A mortgage will become your biggest debt in years! For most people it is true, but it not as scary as it may sound. When you have the knowledge, when you understand what exactly is going on, when you are in full control of the situation – trust me, it is not scary!
I am here to share all the knowledge of the matter I have, with you.
We’ll start with the general idea of the most frequently used mortgage programs.
The two fundamental types of mortgages are the Fixed Rate Mortgage and the Adjustable Rate Mortgage. They both are amortized mortgages, which means that you have to repay the money you borrow (the principal) plus the interest on this money. As the name suggests, the Fixed Rate Mortgage provides the comfortable stability of a fixed interest rate – no matter what, you always know that you will not wake up one day to find out that your debt has unexpectedly doubled. If you have a stable job and your income flow is smooth and steady – this kind of mortgage can be for you. The only problem is that its Interest Rate may be higher than the Interest Rate of an Adjustable Rate Mortgage. You have to pay for the comfort, but it may be well worth it, if you don’t feel very adventurous about your finance.
An Adjustable Rate Mortgage usually looks very appealing in the beginning Read the rest of this article »
