Mortgage amortization explained

The crossover point

Take $400,000 over 30 years at 6.5%, a payment of about $2,528. The month where principal finally exceeds interest is the month your balance falls below half the payment divided by the monthly rate — around $233,000 on this loan.

That happens at roughly payment 232, about 19 years and 4 months in. For nearly two-thirds of a thirty-year mortgage, more of every payment goes to the lender than to you.

Why it works that way

Interest is charged on the balance outstanding, not on the original loan. Early on the balance is nearly the full amount, so interest consumes most of the payment and principal barely moves. Because principal barely moves, next month's interest is barely lower. The loan is slow to start precisely because it is slow to start.

Once the balance does fall meaningfully, the effect runs the other way and accelerates. The final payment on this loan is almost entirely principal.

This is also why total interest is so large. Over 360 payments of $2,528.27 you repay about $910,000 on a $400,000 loan — roughly $510,000 of interest, more than the house cost.

Reading a schedule

Each row shows opening balance, interest charged, payment applied, principal repaid, any extra principal, and closing balance. Three things are worth checking rather than skimming:

• Interest in year one. Multiply it by the years you expect to stay. That is the real cost of the early period, and it is what refinancing resets.
• Balance at the year you might sell. Equity from repayment alone is usually far smaller than people assume at the five-year mark.
• Where extra payments land. An extra amount applied at payment 12 has 348 months of interest to prevent; the same amount at payment 300 has 60.

See your own schedule

The mortgage amortization calculator produces the period-by-period schedule, the balance chart, and the total interest estimate. To test extra principal against it, use the extra payment calculator.

Related reading: how mortgage payments work and extra mortgage payments.

How the split moves over the term

The payment is level but its composition is not. Here is the same payment at four points in a thirty-year loan.

The crossover, where principal first exceeds interest, arrives around payment 220 on this loan. Higher rates push it later; a shorter term pulls it much earlier.

Common questions

Related reading

The rest of this series, and the calculators that let you run the idea on your own numbers.

More mortgage guides

• How mortgage payments work — A $400,000 mortgage at 6.5% costs about $2,528 a month — and $2,167 of the first payment is interest. Here is where every dollar goes.
• Extra mortgage payments explained — An extra $200 a month on a $400,000 mortgage cuts about five and a half years and $111,000 of interest. Why timing matters more than size.
• Mortgage taxes, insurance and PMI — A $2,528 mortgage payment can be $3,212 of actual housing cost. Where property tax, insurance and PMI sit, and how to get rid of PMI.
• Closing costs explained — Closing costs typically run 2% to 5% of the price — $8,000 to $20,000 on a $400,000 home. What is a fee, what is prepaid, and what you can negotiate.

Try it with your figures

• Mortgage Calculator
• Mortgage Amortization Calculator
• Extra Payment Calculator
• Closing Costs Calculator

See also all guides, every calculator, and the calculation methodology behind these estimates.