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In Module 1, we saw how mortgage payment calculations have evolved over time. Initially, mortgage calculations were quite simple. The amount to be borrowed (the principal) was divided by the number of payments to be made. Interest on the balance was then added to each of the payments. The principal amount was obviously highest at the beginning of the loan, but shrank over time as mortgage payments were made. While the principal was paid down, the amount of interest owing also decreased. To the borrower, this meant that payments were very large in the beginning, but then gradually reduced over the life of the mortgage. Rather than having a mortgage payment that changes each and every month and that gets smaller over time, today’s mortgages have payment schedules that remain the same over the term of the mortgage loan. It is referred to as a blended payment because it blends, or combines, the two elements of the mortgage payment (the principal and the interest) into one constant payment amount. While the payment remains the same month after month, the principal and interest that make up that payment vary in their proportions. Here is an example: For a $10,000 mortgage with an interest rate of 10% calculated semi-annually, and amortization period of 25 years, the monthly payments are $89.45 during the term. The chart below shows the breakdown of the principal and interest in these monthly blended payments over the first year. Although the monthly payments are the same ($89.45), the amount of interest and principal that make up that payment change for each and every payment.