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Old 12-01-2012, 12:38 PM
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Weaselboy Weaselboy is offline
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Quote:
Originally Posted by MonkeyCMonkeyDo View Post
On a 5 year loan the first year is over 70% interest payments. It works like reverse slopes. The last two years of a 5 year loan you are finally paying mostly balance not interest. What was the payoff for the 50k loan after one year?
I'm not sure where you get this 70% number from, but it is nowhere near accurate. There is a certain amount of "front-loading" of interest due to the way interest is calculated on the outstanding balance, but it comes out nothing close to 70%... unless I'm missing something you are trying to explain.

Take a $50,000 five year loan at 4%. The first year is $9,218 towards loan principle, and $1,832 in interest. Or about 35% of the total $5,250 in interest for five years. So even in year one you are paying back far more toward principle than in interest.

There is a very linear drop in interest payments each month with a corresponding linear increase in principle payments. In this example about $3.00 a month difference on both sides of the equation.
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