Understanding Your Amortization Schedule: Where Your Payment Actually Goes
An amortization schedule shows exactly how each mortgage payment is split between interest and principal over the life of the loan — and understanding it explains a detail that surprises many new homeowners: in the early years of a mortgage, most of each payment goes toward interest, not toward paying down the actual loan balance. Why the split isn't even across the loan term On a standard fixed-rate mortgage, interest is calculated each period based on the current remaining balance. Since the balance is largest at the very beginning of the loan, the interest portion of each payment is also largest at the beginning — and as the balance gradually shrinks, a growing share of each fixed payment goes toward principal instead, with the split gradually flipping over the loan's term. A simplified illustration of the shift On a typical 30-year fixed mortgage, it's common for well over half of each payment in the early years to go toward interest, with that ratio only crossi...