It would work something like this. Say you had a $1 million loan at 4% interest, amortized over 25 years. The payment would be $5,278/month. If it renewed at 6.75% (where rates are as of this writing), the payment would jump to $6,909/month. That’s almost $1,700 more, which is the difference between being in the black and red for many.
However, after five years at the first renewal, the principal would have been paid down to $871,046. After 10 years, on the second renewal, it would be down to $713,594.
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