I was watching a video about mortgage-backed securities on Khan Academy (ref. this video, skip to 2:32), and something struck me as odd about the way he presented the mortgage model. He presented it as such;
Say you take a loan of $1M with 10% interest, then
year 1, you pay $100k
year 2, you pay $100k
year 9, you pay $100k
year 10, you pay $100k + $1M
Now, call me an idiot, but that seems like a rough deal. I understand that whatever instance you borrow from will be earning more than $1M back, but that tenth year sounds odd. Is this really how it goes down? Because I think I'd have a hard time paying the $100k/year on my mortgage, while saving another $100k/year for the inevitable tenth year whopper.
Has this model been overly simplified, or is this really how mortgages are paid off?