When money is loaned for 30 years, the mortgage agreement requires the borrower to make 360 periodic (monthly) payments to the lender. The payments must remain the same each month and fully repay both the interest and principal during the life of the loan.
The quoted interest rate of 7.00% per year is compounded 12 times a year, resulting in a monthly rate of 0.58% (which is computed by dividing the note rate by 12).
To calculate the interest due for a given month, the monthly rate is multiplied by the current loan balance. If you borrowed $100,000 at 7%, at the end of the first month your interest due would be $100,000 x (0.07 / 12).
The process of recalculating the interest and principal every month is called amortization.
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