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

1/12th of the interest rate is applied each month because the 8% rate is **per year** and there are 12 months in a year.

For example, in the first month $500,000 x 8% x 1/12 = $3,333.33 in interest.