How is interest calculated and paid off in a 30 year fixed rate mortgage loan?

Question

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

Answer 1

Yeah, that’s basically it… there is more interest early on, less down the road. The total amount of interest and principal are amortized so that the payments remain the same, but ratio of interest to principal shift over time.