How much interest is paid in the first year on a $200,000 fully-amortizing loan at a 10% interest rate?

To determine how much interest is paid in the first year on a $200,000 fully-amortizing loan at a 10% interest rate, it's essential to understand how interest is calculated on amortizing loans.

In a fully-amortizing loan, the borrower makes regular payments that cover both interest and principal over the term of the loan. The interest for the first year is calculated based on the loan principal at the beginning of the period.

At a 10% annual interest rate, the first year's interest on a $200,000 loan can be calculated as follows:

First year interest = Principal x Interest Rate

First year interest = $200,000 x 10%

First year interest = $200,000 x 0.10

First year interest = $20,000

However, because the loan is amortized, the total annual payment will include both principal and interest, but the first year’s interest only considers the initial principal. Hence, while the first year's theoretical interest calculation is exactly $20,000, the actual payments made will include an adjustment for the principal paid down over the course of the year.

Given that the payment will be structured to pay off the loan over time, the total interest paid in