Anonymous asked in Business & FinanceRenting & Real Estate · 1 month ago

Since mortgage payments are amortized do you barely build equity the first few years not counting market value?

I know mortgages are scheduled on an amortization table. Payments are calculated on a fixed monthly payment for however long the mortgage is, usually its 30 years. The payments for the first few years are paid mostly towards interest and only a slim margin towards principal but this changes as the mortgage gets older where the composition switches from interest to principal. I know when market value increases it help you build equity but if we were to take that factor out of consideration would you be owning only a small portion of equity if you decide to sell your property after 5 years? I know some people who house jump when the market value increases and they quickly find a replacement to buy a home to avoid some capital gains taxes but during those 5 years since their payments are going towards interests did they build much equity from their payments alone without the help of the market value.

6 Answers

  • 1 month ago
    Favorite Answer

    Many people write in here asking about how they can get out of their automobile payments before they have built up any (or much) equity.

    Their problem comes because most cars depreciate very quickly.

          The situation you describe is similar, except houses generally appreciate in value, so you can almost always sell the house and pay off the dept (mortgage) with the increased market value.  You suggest that without the change in market value there would hardly be any equity.  And you are right.  

         The longer you own the house the more equity you generally built.  This comes about in 2 ways.  1. Through the increase in market value and 2. From the pay down of the mortgage.  

          Every time you sell and move, there are costs involved.  And these costs eat away at your profit from the sale.  There is profit to be made, but it will involve luck or wisdom of when to sell and buy and where to move.

         (It is best to buy up land just before the gold rush and to sell just before the boom is over)

  • 1 month ago

    Look for a mortgage that has a prepayment option.   Paying even one extra house payment a year will get rid of 8 years on that 30 year mortgage. 

  • spot a
    Lv 7
    1 month ago

    if you can make additional payments, an extra $400 per month is making 2 payments in 1 due to the small amount coming off the mortgage. Paying a small amount extra for the first 3 years saves 3 to 5 years off the end of the mortgage That is a lot of cash to save. If you have a 20% credit card, pay that first

  • 1 month ago

    You're mostly right, except that you left out that you can actually lose equity because market value sometimes goes down.

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  • 28AKO
    Lv 5
    1 month ago

    it depends on how much you've paid on your mortgage in 5 years. 

  • Anonymous
    1 month ago

    Yes. That's why a 15 year is better. But, generally, appreciation is a big part of building equity.  Between commissions and no appreciation it might not make sense to buy if you are only going to stay there 5 years with a 30 year mortgage.

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