What Is a Home Loan Balance?
A home loan balance is a financial term that refers to the amount owed on the home loan.Understand what a home loan balance is can help you to understand how your loan works, how much equity you have, and how much you have left to pay on your mortgage.
Other People Are Reading
-
Definition
-
A home loan balance refers to the outstanding amount of principal due on your mortgage. For example, if you borrow $100,000, then your home loan balance is $100,000. If you pay down $10,000, your home loan balance drops to $90,000. Whatever you owe to the mortgage company on your home loan is considered the balance. Outstanding interest is usually factored into that balance. For example, if you have accrued $50 in interests on your $100,000 loan, then your new home loan balance is $100,050 because that is the total amount it would cost to pay off your mortgage.
Balance and Equity
-
You can use your home loan balance to determine the amount of equity you have in your home. Equity is the part of the house that you, not the bank, own. So, assume your home loan balance is $50,000 but your home is worth $100,000. Subtract the balance from the total value of the home to determine that you have $50,000 in home equity.
-
Balance and Interest
-
Your home loan balance is also used to determine how much you have to pay each month in interest. For example, if you are charged a 6 percent interest rate per year, you are charged 0.5 percent each month. To determine your monthly interest cost, multiply your outstanding balance by 0.5 percent. Since interest is only charged on the outstanding home loan balance, or the amount you still owe, this is the most accurate way to get an idea of how much you pay in interest each month.
Payments
-
In the beginning of your mortgage term, most of your payments go toward paying interest. This occurs because your home loan balance is still very high. Payments are applied first to the interest that has accrued, and then to reduce your balance. As your balance gradually gets smaller and smaller, your interest cost also is reduced because, you only pay interest on the amount you currently owe. Your payments stay the same though, on a fixed-rate mortgage, which means more of the payments are applied to reduce the principal. Eventually, you will pay off your balance in full.
Paying Off your Balance
-
Some individuals want to pay off their home loan balance early. This can be done by making extra monthly payments and requesting that they be applied to the principal. This reduces your balance more quickly, thereby reducing the amount of interest assessed each month. Making extra payments can thus be financially advantageous.
Finding Your Home Loan Balance
-
Your home loan balance should be listed on your mortgage statements under 'Outstanding due' or "Payoff balance" or other similar language. Or contact your mortgage lender to ask what your outstanding balance is.
-
References
- Photo Credit home sweet home image by David Dorner from Fotolia.com
