alright, i’ve been trying to save and buy a home for years now. might be able to do it this year but im having an incredibly hard time understanding the moving parts of a home loan. excluding everything but the principal and interest on a loan, how does a 7%APR on a loan of $300k end up making you pay like $750k over the course of 30 years ??? i also saw that home loans are front loaded for the interest first…. 7% of 300k is 21k but people talk about paying interest for the first 2-3 years of their mortgage… im not totally understanding how the interest is factored into the monthly payment.
In: Economics
mortgage interest rates are an *annual* percentage, not a lifetime of loan value: on a. 7% mortgage, you’re paying 7% for each dollar borrowed that’s not paid back each year that it isn’t (gross oversimplification of interest calculations)
monthly payments of mortgages are usually kept close to constant throughout the life of the loan, and the terms of a loan usually dictate that all interest charged that month has to be paid off that month. as such, without any payments beyond the minimum required, the bulk of the first few payments will be interest.
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