Definition
The remaining balance—also known as the outstanding balance—is the amount of the original loan principal that has not yet been repaid. This amount includes any unpaid interest charges and other fees associated with the loan. It is an important term in real estate financing as it indicates the amount that a borrower still owes to the lender.
Calculation of Remaining Balance
To calculate the remaining balance on a loan, borrowers can use an amortization table that details each periodic payment and breaks down the portion of the payment that goes toward interest and the portion that goes toward principal.
Example Scenarios
-
Home Mortgage:
- Initial Mortgage Amount: $300,000
- Monthly Payment: $1,500
- After 10 years of payments, partly principal and partly interest, the remaining balance might be $250,000.
-
Personal Loan:
- Initial Loan Amount: $20,000
- Monthly Payment: $400
- After 2 years, the remaining balance might be $10,000.
Frequently Asked Questions (FAQs)
Q: How do I find out my remaining balance?
A: You can view your remaining balance by checking your latest loan statement, logging into your loan account online, or contacting your lender’s customer service.
Q: Does the remaining balance include interest?
A: Yes, the remaining balance includes both the unpaid principal and any accrued interest.
Q: How does paying extra affect my remaining balance?
A: Making extra payments can reduce your remaining balance more quickly by reducing the principal amount, which in turn reduces the amount of interest that accrues.
Q: Is remaining balance the same as principal balance?
A: No, the remaining balance includes both the principal balance (the amount you originally borrowed and have yet to repay) and any accrued interest.
Q: Will my remaining balance be the same every month?
A: No, it will decrease each month as you make payments unless you are only paying interest, or if any fees are added.
Related Terms
- Principal: The original sum of money borrowed in a loan.
- Interest: The cost of borrowing the principal amount, usually expressed as a percentage rate over time.
- Amortization: The process of paying off a loan through specifically structured periodic payments.
- Loan Term: The length of time over which a borrower agrees to pay off the loan.
Online Resources
- Investopedia - Remaining Balance
- NerdWallet Mortgage Calculator
- BankRate Loan Amortization Calculator
References
- Geltner, D. (2007). Commercial Real Estate Analysis and Investments. Oncourse Learning.
- Brueggeman, W. B., & Fisher, J. D. (2010). Real Estate Finance and Investments, 15th Edition. McGraw-Hill Education.
Suggested Books for Further Studies
- Real Estate Finance and Investments by William B. Brueggeman and Jeffrey D. Fisher
- Principles of Real Estate Practice by Stephen Mettling and David Cusic
- Commercial Real Estate Investing for Dummies by Peter Conti and Peter Harris
Real Estate Basics: Remaining Balance Fundamentals Quiz
### What is the remaining balance in a loan agreement?
- [ ] The amount of interest paid annually.
- [ ] The total amount of money borrowed initially.
- [x] The portion of the principal debt that still needs to be repaid, plus unpaid interest and fees.
- [ ] The annual cost of maintaining the loan account.
> **Explanation:** The remaining balance is the portion of the principal debt that still needs to be repaid, which includes any unpaid interest and fees accrued over time.
### How often is the remaining balance typically updated?
- [ ] Annually
- [ ] Bi-annually
- [x] Monthly
- [ ] Daily
> **Explanation:** The remaining balance is typically updated monthly as payments are made and interest accrues.
### Can making extra payments affect the remaining balance on a mortgage?
- [x] Yes, it reduces the balance faster.
- [ ] No, extra payments only reduce future payments.
- [ ] Only if the extra payments exceed $1000.
- [ ] Only if the mortgage is of variable interest.
> **Explanation:** Making extra payments can directly reduce the remaining balance faster by decreasing the principal and thus reducing future interest payments.
### Does the term 'remaining balance' include the interest owed?
- [x] Yes, it includes principal and interest.
- [ ] No, it only includes principal.
- [ ] It includes future payments as well.
- [ ] It's only interest due at the year-end.
> **Explanation:** The remaining balance includes the unpaid principal along with any interest that has accrued and not yet been paid.
### What happens to the remaining balance if you refinance your mortgage?
- [ ] It doubles.
- [x] It starts again with the new loan terms.
- [ ] It is frozen until the refinance is complete.
- [ ] It amortizes more quickly.
> **Explanation:** If you refinance your mortgage, the remaining balance is paid off with the proceeds of the new loan, and you start repaying under the new loan terms.
### Can you still have a remaining balance after foreclosure?
- [x] Yes, if the sale does not cover the full loan balance.
- [ ] No, foreclosure always wipes out the balance.
- [ ] Only if decided by the court.
- [ ] Only if the property is in deficit.
> **Explanation:** After foreclosure, if the sale of the property does not cover the remaining balance owed on the loan, the borrower may still owe the remaining balance.
### What largely determines the remaining balance on a mortgage loan?
- [ ] The number of rooms in the property.
- [ ] The loan amount divided by the square footage.
- [x] Regular monthly payments and loan conditions (like interest rate).
- [ ] The home's assessed value.
> **Explanation:** The remaining balance is predominantly determined by the regular monthly payments made by the borrower and the loan conditions, including the interest rate over time.
### What might you expect if you only make minimum interest payments?
- [ ] The remaining balance increases.
- [x] The remaining balance does not decrease.
- [ ] The remaining balance fluctuates.
- [ ] The remaining balance decreases rapidly.
> **Explanation:** If you only make minimum interest payments on a loan, the principal amount remains unchanged, so the remaining balance does not decrease.
### How does the amortization schedule help understand the remaining balance?
- [x] It shows a breakdown of each payment towards principal and interest over time.
- [ ] It provides a one-time evaluation of the property value.
- [ ] It tells you how soon the property will appreciate.
- [ ] It provides future market projections.
> **Explanation:** An amortization schedule reveals the breakdown of each periodic payment into principal repayment and interest, helping the borrower understand the remaining balance reduction over time.
### Is the remaining balance of a loan the same as the final amount needed to pay off?
- [ ] Yes, they are always the same.
- [x] No, final payoff may include additional fees and accrued interest.
- [ ] Yes, except for mortgages.
- [ ] No, they differ only for student loans.
> **Explanation:** The remaining balance is not necessarily the same as the final payoff amount; additional fees and accrued interest can alter the final amount required for complete loan repayment.
