# Math and/or investment folk, please come hither...

I’m having a brain fart and can’t figure something out. Here’s the situation:

The difference in monthly payments between a \$400,000 30-yr fixed mortgage at 6.5% (\$2528.27/mo) and the same mortgage at \$350,000 (\$2212.24/mo) is \$316.03. In fact, any \$50k difference, assuming all other loan parameters are the same as above, will always result in a difference in the monthly payment of \$316.03. Now- if we take that \$50,000 and invest it at 6.5%, we only get a monthly interest rate of \$270.83.

Why is the \$50k mortgage difference at 6.5% not the same as the \$50k investment at 6.5%?

Because you are paying off the mortgage. The amount of principle that you pay per month goes down if the total principle goes down.

But the amount I pay each month doesn’t change throughout the entire 30-year life of the mortgage.

That’s a link to your 400k loan amortized out so you can see how the payments are applied. You’ll see that when the loan is 400k, the actual interest portion of the \$2528 is \$2166 which is 6.5% interst (over a year of course, per month it’s .542%). However that would be an interst only loan and the principal would never be reduced.

What you need to understand is that with a normal non interst only payment, the rate you are given is how much interest is added on to the principle each month, not how much you are paying.

Let’s see. \$400,000: 6.5%: 30 years…

510,000 in interest paid for a total of \$910,000 for a \$400,000 purchace… :eek:

If it were the same amount you would still owe the whole \$400K at the end of 30 years.

Over 30 years, I don’t think that is really that bad, considering the appreciation of home value (I’ve heard 6% per year is average) and inflation.

:smack: :smack:

Thanks for clearing the boogers out of my head.