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Why do you pay less interest in the second month of a mortagre than the first?

Updated: 9/24/2023

Wiki User

10y ago

Interests are usually paid on the basis of how much you owe. Here is an example. You borrow \$20,000, and you agree to pay \$1000 of the capital every month, plus an interest rate of 12% a year (i.e., 1% a month) of the remaining debt. (Note that I chose numbers in such a way as to make the calculations easier to follow.) Thus, you would pay:

The first month: Capital: \$1000; interest: 1% of 20,000 = \$200; and you still owe \$19,000.

The second month: Capital: \$1000; interest: 1% of 19,000 = \$190; and you still owe \$18,000.

Etc. - the main point is that the amount of interest you pay gets less and less over time, because you owe less and less, as you pay off your debt.

Wiki User

10y ago

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Q: Why do you pay less interest in the second month of a mortagre than the first?
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