Understanding Mortgage Amortization: Where Does Your Money Go?

Note: While reading this, you might want to open our Mortgage Calculator to follow along with real numbers.

When you take out a 30-year fixed-rate mortgage, your monthly payment remains the same for decades. However, the composition of that payment changes drastically over time. This process is called Amortization.

The Early Years: Interest Heavy

In the beginning of your loan, you owe the bank a lot of money (the "Principal"). Therefore, the interest charge is high. For a $500,000 loan at 7% interest:

• Year 1: You might pay $40,000 total, but $34,000 of that is just interest! Only $6,000 goes toward paying off the house (Principal).

The Tipping Point

As you chip away at the principal, you owe less interest each month. Usually around Year 15-18 of a 30-year loan, you reach the "tipping point" where more of your payment goes toward Principal than Interest.

How Extra Payments Help

Since interest is calculated based on the current balance, making even one extra payment early on can save you thousands.

• Paying $100 extra month goes 100% toward Principal.
• This lowers the balance immediately, reducing the interest charged next month, and every month thereafter for 30 years.

Using the UnitMaster Calculator

Our Pro Mortgage Calculator allows you to visualize this:

1. Enter your loan amount and rate.
2. Click "Amortization Table".
3. See exactly how much you pay in interest vs. principal for every single month of the loan.
4. Export the schedule to PDF to share with your financial advisor.