How are interest and monthly payments calculated on a 30 year fixed rate mortgage loan?
Suppose there is a 30 year loan of 500,000 at 8% interest.
Would that 8% interest have to be paid each year for whatever amount is still left? Ex. 8% of 500,000 is 40,000, so the first year we would have to pay 40,000 in interest, then the next year about be 8% of whatever principal is left, so if 20,000 went to principal we have 480,000 left on the loan and 8% of that is 38,400 paid in interest only the second year.
Or is it calculated differently.
Thanks!
In: 208
The math (from memory) is
Each month
Take the interest rate divided by 12 and that value is multiplied by the outstanding balance. This is how much interest you pay that month.
Since you also pay some principle next month the same calculation has you pay a little bit less interest.
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