Rescheduling Payments on a 30 Year $200,000 Mortgage Loan
The table shows how the monthly mortgage payments on a 30 year loan of $200,000 would change under
four different schedules. In all cases, interest is paid on the outstanding principal balance at the original
mortgage rate shown at the top of the column. All but the "Interest Only" schedule also lead to full
amortization of the principal over the 30 year life of the loan.
#1 Level Pay Mortgage: This is the standard fixed-rate mortgage with equal monthly payments over the full life of
#2 Interest Only Mortgage: This is the minimum monthly payment necessary to cover the interest on the principal
balance. There is no amortization of principal.
#3 Growing Payments with No Negative Amortization: The first year's monthly payment is set equal to the interest
on the loan principal, but the payment increases each year by a fixed percentage. Amortization of the loan principal
begins in year 2 and the full amount is paid off over the 30 year life of the loan.
#4 Growing Payments with Negative Amortization at the Beginning: The first year's monthly payment is set lower
than the interest on the principal balance, so the loan amount grows in the early years. The monthly payment
increases each year by a fixed percentage, so amortization of principal begins as soon as the payment exceeds the
interest on the outstanding balance. The full principal value is repaid over the 30 year life of the loan.
All payment schedules in a given column require no write-down of principal or interest subsidy to the
borrower. The effect of changing the interest rate with no change of the loan amount can be seen by
changing columns. To compute the effect of principal reduction without a change in the rate, reduce all
dollar amounts by the same percent as the principal reduction. For example, if the loan principal is written
down by 20%, multiply each dollar figure by 0.80 (percent growth rates and the first year with positive