A “paydown factor” basically tells us how much of the principal amount of borrowed money is paid back in a given month.
As an example, let’s look at Vlad. (No, really, everyone look at Vlad.) Vlad is a homeowner with a $2,000 monthly mortgage payment. His original mortgage loan was for $350,000, and he’s locked in at a 3.5% interest rate. According to his statement, $1,300 of last month’s mortgage payment went toward the principal, while the other $700 went to interest. If we want to calculate the paydown factor, all we have to do is divide $1,300 by $350,000. When we do, we get .0037, which tells us that Vlad paid off .37% of his loan principal last month.
Vlad’s a multifaceted kind of guy, so in addition to owning a home, he also invests in mortgage-backed securities, or MBSs. We bring this up because paydown factors have uses outside of individual mortgage calculations. For example, calculating the paydown factor for MBSs works just like it does for single mortgages: we just look at how much of the overall principal amount was paid back in a given month, divide it by the overall principal amount, and voila. MBS paydown factor.
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Finance: What is a Mortgage?345 Views
Finance allah shmoop shmoop What is a mortgage Well people
a mortgage is just dead it's alone but one with
special tax treatment For most people simply put Any interest
you pay on a mortgage to buy a home is
tax deductible Morty morton's inputs down a hundred thousand bucks
to buy a home that costs four hundred big ones
his mortgages three hundred grand at five percent interest per
year So that's fifteen thousand dollars a year he pays
to rent the money from the bank which he uses
to buy his dream home with the loop de loop
waterslide Morty earns one hundred grand a year and pays
tax on his last fifteen thousand of earnings soas faras
The irs is concerned since morty can deduct his fifteen
thousand dollars in interest against his earnings he does not
in fact earn taxable wages of one hundred grand annually
Instead he earns taxable wages of eighty five thousand dollars
a year Essentially with government is doing is sharing in
some of the cost of renting the money Taub i'm
ortiz home well why would the u s government be
so charitable Well because home ownership has been integral part
of the american dream since the u s of a
i po'ed in seventeen seventy six easy access to mortgages
and then home buying can be a hugely beneficial asset
In the vast majority of cases homes create family stability
a store of wealth and tax dollars for local schools
in the form of real estate taxes So don't feel
bad about splurging on that water slide there Morty Just 00:01:42.93 --> [endTime] remember you're doing it for the kids Hello
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