1. Amortization, interest and principal
Most people treat mortgages like investments, because you are buying a large asset, after all, right?
Well, it turns out, for the first few years, most of the mortgage payments you are making aren't going to your home equity - they're simply paying off interest. This is due to an amortization schedule.
2. Amortization
Due to the size of the mortgage loan, you begin the mortgage in the initial period by paying mostly interest and retaining very little principal, or equity that goes towards the ownership of your home.
The interest payment is a percentage of the total value of the loan remaining, so of course when your first few payments are made, the interest payment is calculated based on the size of the entire mortgage. Whatever is left after subtracting this interest payment from your total monthly mortgage payment counts towards the principal of the home. This reduces the interest payment for the next period.
But this means that if you were to stop paying your mortgage and sell your home after only a few years, the bank would actually own most of the home because what you paid was mostly interest, and very little principal.
3. Accumulating values via for loops in Python
You'll be using "for loops" in some of the upcoming exercises, so in case you need a refresher, here's a quick example.
You write "for i in range(3)" in order to iterate through all numbers from 0 to 3, not including 3 itself. Any code which you want to be executed inside the "for loop" must be indented.
You can see the goal of this program is to accumulate values over time based on logic inside the loop. At the first iteration 0, the program prints the value 3, since there was a special condition at the first iteration to add 3 to the accumulator, then it adds 1 for the remaining iterations 1 and 2, resulting in 5 after the final iteration.
4. Let's practice!
You'll be working with a more interesting example in the upcoming exercise.