One of the most shocking moments for first-time homebuyers is receiving their first mortgage statement. Despite making a $2,000 payment, only $300 might actually go toward paying off the loan balance.
Welcome to amortization—the process of paying off debt with regular payments over time.
How It Works: The Front-Loaded Interest
In the early years of a mortgage (typically a 30-year fixed loan), the majority of your monthly payment goes toward interest, not the principal (the actual loan amount). This is because interest is calculated on the remaining balance, which is highest at the start.
For example, on a $300,000 loan at 6.5% interest:
- Month 1: You pay ~$1,900. Only roughly $270 goes to principal.
- Year 15: The split becomes roughly equal.
- Year 29: Almost 95% of your payment finally goes to principal.
Why Making Extra Payments Matters
Since interest is based on the daily balance, every extra dollar you pay toward the principal reduces the daily interest charge forever. Making just one extra payment per year can shave 4-5 years off a 30-year mortgage and save tens of thousands of dollars in interest.
Run Your Own Numbers
Don't guess. Use a mortgage calculator to see your exact amortization schedule. Knowing these numbers is the first step to building equity faster.
Calculate Your Savings
Use our free Mortgage Calculator to see exactly how much you can save by paying extra principal each month.
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