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
Your math is roughly correct.
if it’s 8% interest on a 500,000 loan, then 0.8% * 500,000 = $40,000 year 1. $40,000 / 12 months = $3,333 per month. So you’d pay that amount per month, in interest alone. Add to that principal, taxes, and insurance.
That is fuzzy math because it’s not counting that each month you reduce the principal slightly so in February the 8% is on a slightly smaller value than January’s was.
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