How is the total amount of interest paid over the course of a 30-year loan calculated?

The correct answer involves multiplying the monthly payment by the total number of months in the loan term and then subtracting the loan amount. This calculation effectively identifies the total amount of money that will be paid back to the lender over the life of a 30-year mortgage.

To break it down, when you take the fixed monthly payment amount and multiply that by the total number of payments (360 for a 30-year loan), you find the total amount paid over the life of the loan. Then, by subtracting the principal (the original loan amount), you isolate the interest paid. This gives a clear picture of the cost of borrowing over the entire duration of the loan.

This approach provides a straightforward method to calculate the total interest because it accounts for the regular monthly payments made, allowing for a comprehensive understanding of the financial commitments involved in a long-term loan. The methodology depends on the fundamental principle that interest is charged on the principal amount borrowed, and any repayment of the principal reduces the amount on which interest is calculated in subsequent periods.

Other approaches mentioned in the incorrect choices do not accurately capture the process required to calculate total interest. For instance, simply adding interest rates or dividing total payments by the loan amount does not reflect the actual cash flow of