Mortgage

Does the bank benefit from extra mortgage payments? | Jabar Post Indonesia

Does the bank benefit from extra mortgage payments? | Jabar Post Indonesia/a> – This time JabarPost.Net will discuss about Mortgage.

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Does the bank benefit from extra mortgage payments? | Jabar Post Indonesia

A mortgage loan or, simply, mortgage (/ˈmɔːrɡɪdʒ/) is used either by purchasers of real property to raise funds to buy real estate, or alternatively by existing property owners to raise funds for any purpose, while putting a lien on the property being mortgaged. The loan is “secured” on the borrower’s property through a process known as mortgage origination. This means that a legal mechanism is put into place which allows the lender to take possession and sell the secured property (“foreclosure” or “repossession”) to pay off the loan in the event the borrower defaults on the loan or otherwise fails to abide by its terms. The word mortgage is derived from a Law French term used in Britain in the Middle Ages meaning “death pledge” and refers to the pledge ending (dying) when either the obligation is fulfilled or the property is taken through foreclosure.[1] A mortgage can also be described as “a borrower giving consideration in the form of a collateral for a benefit (loan)”.

Mortgage borrowers can be individuals mortgaging their home or they can be businesses mortgaging commercial property (for example, their own business premises, residential property let to tenants, or an investment portfolio). The lender will typically be a financial institution, such as a bank, credit union or building society, depending on the country concerned, and the loan arrangements can be made either directly or indirectly through intermediaries. Features of mortgage loans such as the size of the loan, maturity of the loan, interest rate, method of paying off the loan, and other characteristics can vary considerably. The lender’s rights over the secured property take priority over the borrower’s other creditors, which means that if the borrower becomes bankrupt or insolvent, the other creditors will only be repaid the debts owed to them from a sale of the secured property if the mortgage lender is repaid in full first.

In many jurisdictions, it is normal for home purchases to be funded by a mortgage loan. Few individuals have enough savings or liquid funds to enable them to purchase property outright. In countries where the demand for home ownership is highest, strong domestic markets for mortgages have developed. Mortgages can either be funded through the banking sector (that is, through short-term deposits) or through the capital markets through a process called “securitization”, which converts pools of mortgages into fungible bonds that can be sold to investors in small denominations.



We all know that making an extra mortgage payment will save you money on interest and help you become debt free faster. Does the bank also benefit from the extra payments as well? Today I look at two amortization charts to crunch the numbers and analize whether the bank benefits from these extra payments.

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20 Comments

  1. Welcome back and congrats on the home. I missed your videos. This video was great! I was a long time believer that I should pay off my mortgage but no longer, thanks to my YouTube education

  2. Glad to have you back and congrats on the home! It makes sense that this does benefit the banks based on your great explanation… however does it also benefit the borrower? Pay paying the principal directly we would pay off the loan faster and therefore less interest overall. Can’t wait for the video explaining the benefits of paying off the mortgage sooner, if any. Thanks!

  3. Great video and explanation, that being said i have set a 9 year plan to pay my mortgage off via over payments and the plan took me ages to devise and involved numerous spreadsheets, i look forward to more video's and will go spend some time on your back catalogue. Thanks again

  4. I don't mind of the banks are making more to be honest, likely because I personally like the approach of a fast mortgage repayment (gives me incredible peace of mind) while always keeping the 18% RSP contribution limit maxed. If one fails, it would always be slower on extra payments to repay the house but keep contributions the same.

  5. What is the take home message of this video again? Banks make more money when someone makes extra payments towards the principal? Is that it? A complete waste of time.

  6. My Bank has done everything possible to make it difficult to make extra principal payment on my home loan as well as other friends I know with there home loans that's tells me all I need to know,Banks would fail quickly if they couldn't get there interest money.

  7. It looks like it paying off early is good for the banks. You need to decide for yourself if paying off debt early is the best option for you independent of whether it is good for the bank.

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