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
The percentage rate is what percentage of the loan is due that year. So if it is a $100,000 loan a 1% interest rate means you owe $1,000 a year. If it’s a 5% interest rate, you owe $5,000 a year. So the difference is $4,000, or about $333/month.
Technically it’s recalculated every month so you owe 1/12 of whatever the interest rate is of the remaining balance of the loan. But the idea is the same. They use an amortization calculator to make it so your total monthly payment will pay off the loan plus interest in the given number of years.
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