can someone explain mortgages to me (loan, interest rate, rate, loan)

[mandem]

please.. i wasn't taught it in school because, according to current schooling system, Pythagoras's theorem is far more important in life

i know there are a few different types.. i also know its basically a loan. but what striked me is the amount of interest that is paid back.. a 25 year mortgage with 5% interest per year adds up to an extra 125% on TOP of the price of the house !!.. either i'm seeing it wrong or that is just plain ABSURD !!..

[Pfhtex]

I waste enough of my time explaining mortgages to people who have had several, but weren't paying attention, and blame the Evil Bank.

Look it up. Mortgage loan - Wikipedia, the free encyclopedia

P.S.: You mis-spelled "absurd."

[399083453]

If you dont have cash to buy a house, a bank will lend you the money and break it up into monthly payments.

That is pretty much it.

[Lacerta]

Originally Posted by mandem

please.. i wasn't taught it in school because, according to current schooling system, Pythagoras's theorem is far more important in life

i know there are a few different types.. i also know its basically a loan. but what striked me is the amount of interest that is paid back.. a 25 year mortgage with 5% interest per year adds up to an extra 125% on TOP of the price of the house !!.. either i'm seeing it wrong or that is just plain ABSURD !!..

You pay interest on the remaining balance, so the only way 5% interest would add up to 125% of the cost of the home would be if you had a 25 year interest only loan, where you never paid any principal. Most loans include some principal reduction each month, so in reality, a 5% loan on a 25 year mortgage would be more like 75% the amount of the loan. So a $100k loan over 25 years at 5% would end up costing more like $175k (rather than the $225k you indicated).

But yes, the interest expense is a significant amount. That is why it is best to save up a decent down payment, get as low an interest rate as possible, and as short of a loan as you can afford.

[davebarnes]

Originally Posted by mandem

a 25 year mortgage with 5% interest per year adds up to an extra 125% on TOP of the price of the house

True and you will sign a document at closing that states that you are aware of this.

[dragontales]

In order for the bank to make such a huge loan to you they need to make a profit out of it. No such thing as a free loan.