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

The best way to look at it is this.

Mortgage payments have two parts. The principal and the interest.

The principal is the loan itself and the interest is the fee the lender charges. So let’s say you have a loan amount of 200,000 with an interest rate of 6%. You are making monthly payments. So you would use this calculation.

6% = .06

So take .06 and divide by 12 since we are making monthly payments.
.06 / 12 = .005

take .005 and multiply it by the remaining principal of the loan.

.005 * 200000 = 1000

So your first months interest ould be $1000