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Anatomy of a Direct Reduction Mortgage

Direct Reduction Mortgage Analysis

Direct Reduction Mortgage: A mortgage that requires equal payments of a fixed amount for each period that includes both principal (loan recapture) and interest. Payments are credited first against interest on the declining principal balance, so the amount of money credited to principal gradually increases, while that portion credited to interest gradually decreases.

EXAMPLE of varying dynamics of a Direct Reduction Mortgage

Principal: $250,000.00
Term: 30 years
Interest: 7%
Monthly P & I: $1,663.26


#1
Column A = Assume one extra payment per year. (Extra annual payment of $1,663.26)
Column B = Assume we pay $1,850.00 monthly instead of the required $1,663.26

  Actual A B
Retirement 4/1/33 4/1/27 7/1/25
Total Interest Paid $348,772.25 $266,651.20 $243,810.21
Savings - Time 0 72 months
(6 yrs)
91 months
(7 1/2 yrs)
Savings - Interest 0 $82,121.05 $104,962.04


#2
Results based upon varying terms

Term P & I Interest Paid Interest Saved

30 year

$1,663.26

$348,772.25

N.A.

25 year

$1,766.95

$280,084.46

$68,687.79

20 year

$1,938.25

$215,179.36

$133,592.89

15 year

$2,247.07

$154,472.72

$194,299.53



#3
Results based upon varying rates

Rate P & I Interest Paid Interest Saved

7 %

$1,663.26

$348,772.25

N.A.

6 3/4%

$1,621.50

$333,738.29

$15,033.96

6 1/2%

$1,580.17

$318,861.22

$29,911.03

6 1/4%

$1,539.29

$304,145.48

$44,626.77

6 %

$1,498.88

$289,595.47

$59,176.78





 

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