Ever wonder why it takes so long to build equity in your home? The answer is amortization — and understanding it can change how you approach your mortgage.
What Is Amortization?
Amortization is the process of spreading a loan into equal payments over time. Each payment covers both interest (the cost of borrowing) and principal (reducing your balance). The key insight: in the early years, most of your payment goes to interest.
The Shocking Reality
On a $300,000 30-year mortgage at 6.5%, your first monthly payment of $1,896 breaks down as: $1,625 to interest and only $271 to principal. That's 85.7% interest! After 5 years of payments, you've paid $113,764 total but reduced your balance by only $19,688.
The tipping point — where more of your payment goes to principal than interest — doesn't happen until about year 18-19 on a 30-year mortgage.
How Extra Payments Help
Extra payments go directly to principal, which reduces the balance that interest is calculated on. Even $100/month extra on a $300,000 mortgage at 6.5% saves about $67,000 in interest and pays off the loan 5 years early.
View your full schedule with our amortization calculator — printable and showing every payment.