How a mortgage gets paid down
With a fixed-rate mortgage your payment stays the same, but its makeup changes. Each month, interest is charged on the remaining balance and the rest of the payment reduces the principal. Early on the balance is large, so most of the payment is interest; as the balance falls, more goes to principal. This pattern is called amortization.
An example
A $400,000 loan at 6.5% for 30 years has a principal and interest payment of about $2,528. In the first year, only about $4,500 of your roughly $30,300 in payments reduces the balance; the rest is interest. It takes about 22 years to pay off half the loan, and total interest over 30 years comes to about $510,000.
Reading the schedule
The table shows each year’s principal, interest and ending balance. Two milestones are useful: when half the loan is paid off, and when your principal payments start to exceed interest. If you put less than 20% down, the balance also tells you when you can ask to drop PMI (at 80% of the original value).
Ways to change the schedule
- Extra payments go straight to principal and shorten the loan.
- A shorter term (15 or 20 years) has higher payments but far less interest.
- Refinancing restarts the schedule, which can increase total interest even at a lower rate.
How amortization affects other decisions
The schedule matters when you’re deciding whether to refinance, sell or pay extra. Selling after a few years means you’ve built little equity from payments alone, so price changes and closing costs dominate. Refinancing late in a loan resets you to the interest-heavy early years. And when you’re weighing an extra payment, the schedule shows how much interest each year of the loan would otherwise charge.
Questions buyers ask
How can I build equity faster?
Make extra principal payments, choose a shorter term, or make biweekly payments. Each reduces the balance sooner, so less interest is charged and more of every later payment goes to principal.
Why is so much of my payment interest?
Interest is charged on the balance, which is largest at the start. As you pay it down, more of each payment goes to principal.
Does the schedule include taxes and insurance?
No. Those are paid through escrow and don’t affect your loan balance.
How do I see a month-by-month schedule?
Your servicer can provide one; the yearly view here shows the same pattern.