How does purchasing a $200K home with a $20K down payment at 5% interest end up costing almost $500K total? What crucial aspect am I missing?
hey, it isnt just the house price, its the interest that stacks up on the whole loan over decades. you end up paying way more because of all the interest fees. kinda crazy, right?
The situation arises from how interest accrues on the balance of the loan over time. In this example, with only a small down payment, you end up financing the majority of the home’s cost. Every monthly payment contributes a portion toward reducing the principal and another toward interest, and with a 5% interest rate over several decades, you make so many payments that the total interest paid ends up nearly doubling the original purchase price. This additional expense is the cumulative result of paying back a large amount over an extended period.