🏦 Understanding Mortgage Amortization

Why Your First Payment Is Mostly Interest

An amortizing loan has fixed monthly payments, but the split between principal and interest changes each month. In the beginning, your outstanding balance is large, so the interest charge is high. Over time, as the balance shrinks, more of each payment goes to principal.

On a $300,000 mortgage at 6.5% over 30 years ($1,896/month): • Month 1: $1,625 interest, $271 principal • Year 5: ~$1,550 interest, ~$346 principal • Year 15: ~$1,200 interest, ~$696 principal • Year 25: ~$600 interest, ~$1,296 principal

The Total Interest Shock

Most buyers focus on the monthly payment and ignore the total cost. That same $300,000 mortgage: • Monthly payment: $1,896 • Total paid over 30 years: $682,637 • Total interest paid: $382,637

You pay more in interest than the original loan amount. This isn't a scam — it's the mathematical reality of borrowing a large sum over three decades.

The Power of Extra Payments

Extra principal payments are disproportionately valuable early in the loan, because you eliminate the compounded interest that balance would have generated.

Paying an extra $200/month on a $300,000 30-year mortgage at 6.5%: • Saves ~$77,000 in interest • Pays off 6 years early

Even one extra payment per year (biweekly payments accomplish this automatically) saves tens of thousands over the loan term.

Refinancing and Amortization Reset

When you refinance, you reset the amortization clock. If you've been paying a 30-year mortgage for 10 years and refinance into a new 30-year loan, you're now paying 40 years total. Even at a lower rate, you could pay more in total interest.

A smarter approach: refinance into a 15 or 20-year mortgage, or keep the same term but lower your rate. Or simply make extra payments on your current loan.

Using an Amortization Calculator

An amortization calculator shows the full schedule: exactly how much goes to principal and interest each month, your remaining balance after any payment, and the impact of extra payments. Running different scenarios — higher down payment, shorter term, extra monthly payments — can save you tens of thousands of dollars through informed decision-making.