Mortgage interest is money you pay in interest to the lender that holds your mortgage. Every month, a mortgagee pays an equal sum that always includes principal and interest. The principal is the amount that is applied towards the original loan amount. The interest is amount the lender is charging you to borrow the money.
In the first five to ten years of a mortgage, the mortgage interest accounts for well over half of the scheduled monthly payment. As the mortgage ammortizes, the amount applied to the principal grows and the amount being applied to the interest decreases. This is because, when the principal balance is lowered, the amount of interest also lowers.
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A document called a truth in lending disclosure is provided to every mortgagee. This document outlines the mortgage interest rate, ammortization schedule, total interest, and total of all payments at the end of the mortgage term. The figures can be staggering when viewed for the first time.
There are different types of mortgage interest rates. A fixed rate applies to most mortgages, and simply means that whatever the interest rate is at closing, it is the rate that will apply for the life of the loan. A variable interest rate means the rate that is charged can fluctuate. Some variable rates remain fixed for a period of time and later become variable, while others start out as a variable rate and become fixed after a period of time. Standard mortgage interest rates change almost daily and vary slightly from lender to lender.
Unfortunately, there is no such thing an interest-free mortgage. However, primary mortgage interest is tax deductible up to 100% in many cases, and in some cases, the interest from a second mortgage or equity loan is also tax deductible. By law, your mortgage company must provide you with a year-end statement every tax year declaring the amount of interest you paid. If you are paying interest on investment property, rental property, or another property that is not your primary residence, you should talk to a tax advisor to determine whether it is tax deductible.