Amortization Schedule - 30 Year Mortgage

[Chauncy Gray]

Hello Everyone,

I was at a local real estate investor group meeting last night, and I was told something that I could not believe at first. I was told that amortizations are never good, especially for 30-year mortgages. The presenter told us that we are being told by the bank that we are paying, for example, a "5%" (or any "low") fixed interest rate on a 30-year mortgage, but what the bank is not telling us is how much we are actually paying altogether. The presenter continued and said that those who are on 30-year mortgages are paying 60%-100% interest (or 160% - 200% of the loan value), not the traditional "5%" that we are applying for. I just could not believe it, until tonight, where I built an amortization schedule and I ran a scenario. 

I created an amortization schedule for a $484,000 loan on a 5% interest rate. Upon completing the schedule, I took the total amount of the simple interest for all 360 periods and the principal for all 360 periods. I totaled each separately, and then I added them together. 

Simple Interest - $451,358

Principal - $484,000

Simple Interest + Principal = $935,358

If I did this correctly, the borrower is paying back nearly double of what he or she borrowed (over 193%) at the last period. I find this ratio to be the same for any 30-year mortgage, and I also found the ratio to be smaller for loans with shorter terms. 

With the way the amortization schedule is structured, 5% is being applied, but it's the interest that's deducted first before the principle, as with any other schedule. The simple interest and principal still add to the monthly payment, but the banks are making more money (a lot more I guess) by deducting the interest first. I don't find the banks to be lying, but I rather find them to be a bit cunning...

Am I missing anything here? I added the link to the spreadsheet that I generated, if anyone wants to review it:

https://docs.google.com/spread...

Why should real estate investors take out 30-year mortgages if the investor has to pay back nearly double to the bank, even if the investor makes profit off of the property?