Example scenario
Loan amount – 500K, loan period – 20 yrs
Interest rate original / hike – 1% / 5%
Monthly payment original / increase – 2.3K / 3.3K
That is a 30 percent increase in monthly loan payments for a 4 percent rate increase.
Why?
Calculated using online calculator
In: 0
It’s caused by the compounding nature of interest over the term of the loan. An interest rate increase means everytime the interest compounds you owe more on the principal you borrowed, but also more on the interest earned during the compounding periods. The more compounding periods remaining the greater the effect. How a mortgage is structured can also have an impact, but for simplicity sake the route cause is compounding intrest.
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