eli5 – why does housing loan monthly payment rise sharply due to interest rate increases?

Question

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

Answer 1

It’s a 30% increase for a 4 ***percentage point*** increase. Percentage points are not the same as a raw percent increase. In terms of percent increase, it’s a 30% increase for a 400% increase in rate.