Why does my mortgage payment decrease by 3% year after after?

The mortgage payments on my primary home and on my rental both decrease by 3% year after year, but my mortgage is fixed, so the total payment doesn't change.

Why is the system reducing my payment like this? It doesn't show a principal/interest breakdown, which could make sense if it had asked me for my rate and was showing the interest only portion, but the first year's payment is both principal and interest.

Is it inflation? I have inflation set at the default 3% per year, but it seems that none of the other numbers are affected by inflation in this way. Our labor income increases by the 2% I set it at (not the 1% net it would show if inflation is included) for example.

Pardon me if this is stuff everyone knows. I'm new to ESPlanner. Thanks!

Comments

dan royer's picture

Yes, inflation. The reports are all in 2017 dollars (or current-year dollars) and because you have a fixed mortgage you pay off with cheaper dollars each year. When you enter earnings you are entering today's dollars, so those are adjusted on the input side.

The other place you may see a declining number is in a pension. If the pension is 0% indexed to inflation, then that too will reduce in amount relative to current-year dollars each year.

Dan

Thanks Dan!