Loan Money Borrowed - is 1st Debt
'Interest' is due only for the time Loan is used - 2nd Debt dependant on 1st Debt
Repayments applied to 2nd debt first. Only if anything left it is applied to 1st debt.
Repayments 'if' applied to 1st Debt first will SAVE:
$264,335.84
On a Loan of $ 300,000 @ 8 % p.a for 25 years
Interest charged is $394,077.67 (due to applying to 2nd debt first).
Interest is $129,741.84 (if applied to 1st debt first)
Mathematically, what the lenders charge is called Compound Interest (interest on Interest) and NOT just interest on loan.
This 8% p.a is equivalent to 20.06% p.a when calculated in correct way.