Most people finance cars, homes, and education with loans. Understanding amortization, APR, and total cost of borrowing saves you thousands of dollars.
Most loans are amortized: each payment covers the month's interest first, then reduces principal. Early payments are mostly interest; later payments mostly principal.
A mortgage is a home loan, typically 15 or 30 years. Monthly payment: M = P[r(1+r)^n]/[(1+r)^n−1] where r = monthly rate, n = number of payments. A 30-year mortgage costs about 2× the purchase price in total payments at typical rates.
Always calculate the total paid over the life of a loan, not just the monthly payment. A lower monthly payment often means more total interest. Compare using APR.
A down payment of 20% avoids Private Mortgage Insurance (PMI), which adds ~0.5–1% annually. Equity = home value − remaining balance. It grows as you pay down principal and as the home appreciates.
Q1: In an amortized loan, early payments are mostly:
Q2: Why does a 20% down payment matter for a mortgage?
Q3: A 30-year mortgage at 7% on $250,000 costs roughly how much in total interest?