Interest Rate vs. Interest Volume

Person filling out interest rate paperwork

Discover why a low interest rate can still cost you hundreds of thousands, and how to save that money instead.

When it comes to mortgages, many people think that if they get the lowest possible interest rate, they’ve won.

And while it’s definitely a good thing, the whole idea is pretty deceptive.

Regardless of your interest rate, you’ll still be shelling out tens if not hundreds of thousands of dollars in interest over the course of your mortgage.

And the tricky part is, you’ll be paying a huge portion of that interest in the first seven to ten years.

If that’s news to you, you’re not alone.

Keep reading as we explore the difference between interest rate and interest volume, how much you’ll actually be paying the bank each month, and how to save tens and even hundreds of thousands of dollars in interest (instead of paying the bank).

Ever Wondered Why Banks Are in the Business of Lending Money?

The answer is simple: interest.

Interest is the banks’ bread and butter. They make a massive chunk of their profits by charging people interest on their mortgages.

So, the lower your interest rate, the better. Right?

Well, yes, but unfortunately, it’s more complicated than that.

As it turns out, not all interest is created equal.

A lower interest rate certainly helps make your principal monthly payments more manageable. But when you sign up for that deal with the bank, they don’t tell you the whole story.

What they don’t tell you is how much of your monthly mortgage payments will be going towards paying them back in interest...

Interest Rate vs. Interest Volume.
What’s the Difference?

First, your interest rate is the percentage of your principal your lender charges you for the borrowing each period. As you pay down your principal, the actual amount of interest you pay each month will go down.

That amount is your interest volume.

In short, your interest rate determines how much interest volume will be tacked on to your monthly mortgage payment. Or, in the case of Credit Cards, how much interest volume will be tacked on to your outstanding balance.

But lunders have a trick up their sleeve that protects their profits and maximizes homeowners' monthly interest volume...

In the 1970s, the banks figured out that most homeowners only stay in their newly purchased homes for around seven years.

So, to ensure they got the most out of every loan, they created what are called “front-end loaded” mortgages.

When a mortgage is front-end loaded –– as all of them are now –– it means that the majority of the interest you owe the bank is tacked on to the first seven to ten years of your mortgage.

This clever little strategy is how the banks make sure they get their fair share in case you decide to leave your new home within that time frame.

How does Interest Work
on a Mortgage Payment?

Even if you have a low interest rate, the actual amount of interest you pay every month -your interest volume- can make up a huge portion of your total mortgage payment.

That amount is your interest volume.

Interest payments are calculated based on how much you owe the bank. So, the more you owe, the more your interest volume will be.

It’s not uncommon for interest volume to take up as much as 60% of your monthly mortgage payment.

That means if your mortgage is $2,000 a month, you’d be shelling out up to $1,400 in interest straight to the bank.

And by the end of your mortgage, you could be paying hundreds of thousands of dollars in interest.

How is the Mortgage Interest Calculated?

To calculate your mortgage interest, lenders multiply your principal loan balance by your interest rate. Then, since you pay every month, they divide that number by twelve to get your monthly mortgage payment.

So, Let’s say you take a thirty-year, $300,000 mortgage out on a new home at 3.0% interest.

On the surface, that looks like a great deal. But all said and done, you’ll end up paying $455,332 total over that thirty years.

With a little bit of math, that means you’ll have given away $155,332 of your hard-earned money to the bank in interest payments.

That’s over 50% of what the house cost in interest alone!

But believe it or not, that’s getting off easy.

By charging people interest on their mortgages, banks regularly take in nearly 75% of total mortgage costs.

These loans not only cost families hundreds of thousands of extra dollars, but they also keep them locked in for decades, often robbing them of the opportunity to build real, life-changing wealth for themselves.

Of course, that doesn’t even take into account credit card interest volatility and the obscenely high interest rates banks and credit card companies charge. This is a bit of a sidenote, but it’s relevant to millions of Americans nonetheless.

According to Forbes, the average credit card interest rate in 2024 is nearly 28%. Investopedia reports 24.37%. Either way, even with good or “prime” credit, you’re looking at a 20% rate—at best.

With rates at record highs, unless you zero your balance each month, you’re bound to pay interest on the interest volume you’ve already accrued. It’s a vicious cycle that doesn’t just disrupt people’s financial health. It makes their financial future uncertain.

Naturally, this begs the question…

How Can You Save That Interest Instead?

If your interest payments are calculated based on how much you still owe the bank, then the best way to reduce your interest is to pay off your debt as quickly as possible.

Many people figure this out and think, “I’ll just be super frugal and cut out any needless spending!”

But there’s one big problem with this idea: Consistency.

Income and expenses are dynamic. The flow of money in and out of your account changes all the time.

Your car may need new tires. You may take your family on vacation. Medical expenses come up when you least expect them.

Life happens.

Tracking these changes, understanding their long-term financial impact, and updating your strategy as you go would quickly turn into a part-time job.

And most people work forty or more hours a week, have families, mouths to feed, and a mountain of other responsibilities on their shoulders.

Plus, to save yourself a significant amount in interest and shave years off your mortgage, you would have to be incredibly disciplined about saving and repurposing idle money in your accounts for a very long time.

We’re talking several years.

It’s a Feature, Not a Bug

Think back to when you were in school.

Did they teach you how to apply for a house or car loan? Did you ever take a course on how to pay your taxes? Do you remember taking a money management class?

We don’t either.

The system prepares you more for being a mathematics professor than it does for being knowledgeable about and responsible with money.

Unless you pursued a career in finance or a related field, chances are you never learned how to make your money work for you and create wealth for yourself and your family.

How can I avoid paying so much interest?

United Financial Freedom (UFF) developed a system to save you tens and even hundreds of thousands of dollars in interest, shave several years (even decades) off your mortgage, and reduce some of the nagging stress that comes with having debt.

And it does all this without requiring you to get another job or make any drastic changes to your lifestyle.

How Can I pay off my 30 year mortgage in as little as 10 years?

Eliminate Debt in Record Time With the Money Max Account

United Financial Freedom’s Money Max Account is like a GPS for your finances.

At any given moment, it tells you the true cost and long-term impact of every financial decision you make, dynamically adjusting to the changes in your income and expenses and telling you the exact date you’ll be debt-free.

It does this by accounting for all your income, expenses, and debt and uses high-level banking strategies to identify and repurpose idle money in your accounts to eliminate your debt as quickly as possible.

Just like a GPS updates your route and ETA with every turn you make, the Money Max Account does the same with your finances.

Whenever you make a purchase, it gives you a new debt-free date and tells you how much you’ll save in interest payments over the course of your mortgage.

It also notifies you whenever there’s idle money in your accounts and tells you which debt to put it towards, how much, and when –– to the penny.

As we mentioned before, following the bank’s plan will have you giving away hundreds of thousands in interest payments to the bank, regardless of your interest rate.

With the Money Max Account, you can pay off a thirty-year mortgage in as little as seven to ten years, and save hundreds of thousands of dollars in interest payments.

Instead of paying the bank, you can keep that money where it belongs: in your pocket!

To learn more about the Money Max Account and how much time and money it can save you, check out how it works.

Or get in touch with a Money Max agent today.

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