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Great Economic News: Recession is Over!
"Joe Parsons" wrote in message ... On 07 Sep 2003 01:33:50 GMT, (Gould 0738) wrote: Just when it seems that you do indeed *have* a brain, you post something like this. If a mortgage rate goes up from 5% to 6%, the monthly payment on a 30 year mortgage goes up by a little under 12%...not 20%. Sorry, but I'm not the one who needs to see the Wizard about a brain. When money costs 6%, it *is* 120% as expensive as when it costs 5%. "So, why doesn't the payment go up by 20?" inquires NOYB. Good question, Doc. It's because your monthly payment includes principal as well as interest, and the prinicpal portion of the payment doesn't increase, only the interest. Sorry, but it doesn't work quite that way. Loans are amortized by a fairly complex equation, and your last statement is untrue. When the interest rate changes for the same principal balance and term, both the interest and principal components of the payment will change. But the interest amount in each payment changes exactly the same as the percent change in the rate on a 30 year mortgage. If the rate jumps from 5% to 7% (a 40% increase), the amount of interest paid in each payment also increases by 40%...even though the total payment increases by a much smaller amount. That means Gould was right and I was right. |
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