4 ms·

It's scary that you even have to explain this to another adult.

• ethbr1 11mo ago
  Yes and no. A lot of people have gaps in their financial education. That said, mortgages aren't rocket science. 1. Assume at the end of the day you want the homeowner to be paying a stable monthly amount*. 2. In order to get there, you have {loan term}, {interest rate}, and {loan amount} as primary variables. 3. Assuming {loan term} and {interest rate} are constant (in a given mortgage market, at a given time), that leaves {loan amount} as the only variable. So how do you get a constant monthly payment for a variety of {loan amounts}? 4. You add up all the interest that would be owed over the entire {loan term}, using {interest rate}, then divide each monthly payment into some proportion of {interest payment} and {principle payment}. 5. You also front-weight the interest payments, because at that time there's more outstanding total loan (versus at the end of the loan term, when only a little principle remains to be paid back).* * Not super complicated. Yes, there's compound math, but conceptually simple. * For some definition of stable, even if it readjusts on some schedule * * Point in time interest pricing like this also makes future recalculation for over/underpayments easier, as you're essentially trued-up on interest payments at all times
• stavros 11mo ago
  I think the $70k downpayment mentioned in the original comment is what changes the math from "impossible" to "25 years or so".