How does a mortgage work? Equity!

Principal vs. Interest

In the early years of a mortgage, a greater percentage of each payment goes towards interest charges and a smaller percentage covers the principal repayment. As the amount you owe decreases, more of each payment goes toward paying down the principal.

Building Equity

The more principal you pay down, the more equity you build up in your home. Basically, equity is the amount of your home that you own. If your home is worth $300,000 and your mortgage is for $250,000, that means you have $50,000 in equity.

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