How is interest calculated on a loan?

4 Replies

Hello! So I guess I am a little confused on how mortgage payments are decided. I have a cousin who wants to sell his home and travel in an RV with his wife. Bought it in '99 for $245,000. Zillow estimates $840,000 now but they have done A LOT to the inside and yard so for safe measures I said $900,000. its a 3/2 1900 square feet about a quarter mile from the beach in Oceanside, Ca. I told him how I was trying to get into REI and he offered to seller finance it to me at 7% no money down. I am trying to run numbers and am getting a little confused.

Figured 900,000/ 30 years / 12 months + 7% = $2675.  The 7% I got from what would have been the monthly mortgage. I know I am doing something wrong though. I did the online mortgage calculators and its coming out to $6,000 a month and I am not sure how. 

Also planned on managing it myself for a little while and putting it up on AirBnB for $165 a night. 19 days a month and I would break even (adding in insurance and everything else). After that it would be profit money. What do you guys think? If, for some reason, I am in way over my head and drown in payments, what does that look like with seller financing? Could the title be handed over to my cousins again easily to sell like normal? What kind of extra fees am I not seeing in that situation other than title company fees?         Thank You in Advance!!

Also I realize this is a huge jump to make for a first time investor on a property valued so high, but I figured the terms were amazing and I am having a difficult time getting approved for conventional loans to start smaller. Him and his wife are in no means tight on money and could just as easily sell it to someone for full value. But they are both retired, have everything paid off, no kids, and want to just road trip for awhile and wouldn't mind helping me get started. 

@Mariah Sanchez 7 percent interest is charged annually on the principle with repayment (amortization schedule of 30 years). Long story short use a mortgage calculator. Buying at say 900k at zero down would Be a monthly payment of 5988 a month. That’s just P and I

$6k/mo mortgage payment is correct.  This includes principal & interest payments on the loan only, does not include taxes, insurance, management, vacancy and mantinence.  Obviously $165/nite for 19 days/mo doesn't even touch your monthly loan payment, let alone everything else.

Rentals in CA generally do not cashflow, particularly on the coast in SoCal.

@Mariah Sanchez Yeah the math for mortgage calculation is not how you did it at all. Im on my phone so i cant write it out. The calculator online is correct though, its about 6k per month. That is principle and interest ONLY. Youll still have insurance and taxes built into the total escrow payment. Just be really careful here. 7% is NOT a good rate for this deal at all, and youre going to have to generate a massive amount of gross income each month to stay solvent.