Real Estate :: Principal Reduction
A mortgage or principal is the amount of money you actually borrow from a financial institution to bridge the gap between your purchase price and your down payment. Your principal borrowed is then paid off over a number of years; 25 years is an amortization commonly used. Having your principal paid down is considered your Principal Reduction. Why is that important? Because underlying all the benefits of Cash Flow, Leverage and Appreciation, there is one fact about real estate that makes it more reliable than any other type of investment, and that is, as long as your mortgage is being paid every month, then every month your equity is increasing. Why? Because the principal amount of your mortgage is slowly being reduced to zero, and when you have no mortgage, you and your family can enjoy positive cash flow and further property appreciation for generations to come.
| End of Year |
Outstanding Principal |
| 1. | $ 88,110 |
| 2. | $ 86,172 |
| 3. | $ 84,103 |
| 4. | $ 81,917 |
| 5. | $ 79,623 |
| 6. | $ 77,234 |
| 7. | $ 74,686 |
| 8. | $ 72,072 |
| 9. | $ 69,333 |
| 10. | $ 66,421 |
| 11. | $ 63,366 |
| 12. | $ 60,134 |
| 13. | $ 56,766 |
| 14. | $ 53,190 |
| 15. | $ 49,467 |
| 16. | $ 45,559 |
| 17. | $ 41,459 |
| 18. | $ 37,147 |
| 19. | $ 32,578 |
| 20. | $ 27,789 |
| 21. | $ 22,759 |
| 22. | $ 17,479 |
| 23. | $ 11,938 |
| 24. | $ 6,112 |
| 25. | $ 0 |
|
Interest Rate 5.00% Amortization 25 years |
|
| Purchase Price: | $120,000.00 |
| Down Payment: | $30,000.00 |
| Mortgage Amount: | $90,000.00 |
| Annual Payments: | $7,818.02 |
