Why the early payments are mostly interest
A fixed-rate loan has the same payment every month, but the split changes. Interest each month is the balance times the monthly rate, so it is largest when the balance is. Whatever is left of the payment goes to principal, the balance falls a little, and next month's interest is a little smaller. The formula picks the one payment that brings the balance to exactly zero at the end of the term.
On a $320,000 loan at 7.4% over 30 years the payment is $2,215.62. The first one is $1,973.33 interest and only $242.29 principal. In the first year you pay $23,579 of interest. Half the loan is not paid down until payment 265 of 360, and principal first overtakes interest at payment 249. Over the full term the interest comes to $477,617, 149.3% of the amount borrowed. The last payment is $2,209.47.
The balance year by year
| End of year | Balance | Interest paid so far |
|---|---|---|
| 1 | $316,992 | $23,579 |
| 5 | $302,473 | $115,410 |
| 10 | $277,128 | $223,002 |
| 15 | $240,476 | $319,288 |
| 20 | $187,475 | $399,224 |
| 25 | $110,830 | $455,516 |
| 30 | $0 | $477,617 |
Shorter terms
A 15-year loan at the 15-year average of 6.71% has a payment of $2,824.62, and total interest of $188,431, which is 39.5% of the 30-year figure. The higher payment buys a lower rate and half the time for interest to build up. If the 15-year payment is too high, extra payments on a 30-year loan get part of the way there while keeping the lower required payment; see the extra mortgage payment calculator.
Using the schedule
The schedule answers practical questions. To know what you would owe if you sold in year 7, read the balance at payment 84: $293,440 here. To see how much interest you could report if you itemize, add the year's interest column. To check a servicer's statement, find the payment number and compare the split; a difference of more than a few cents usually means an extra payment was applied, or a payment was late.
The CSV download has one row per payment with the payment, interest, principal and balance, ready for a spreadsheet. It is built in your browser from the inputs on the page; nothing is uploaded.
Equity is the home's value less this balance. In the early years almost all of it comes from the down payment and any rise in the home's price, because so little principal is being repaid. By the end of year 10 on this loan you have paid off $42,872 of principal, which is 16.1% of the $265,874 paid in those ten years.
What the inputs mean
- Loan amount: the amount borrowed, which is the price less the down payment.
- Rate: the note rate, not the APR. Filled with the latest weekly average.
- Term: the years over which the loan is paid off.
Common mistakes
- Reading the APR as the rate. The APR adds fees, so it is a little higher and does not set the payment.
- Expecting the payment here to match the whole bill. Property tax and insurance are on top; the mortgage calculator includes them.
- Thinking the early years build little equity because the loan is unfair. It is simply the interest on a large balance.
Amortization questions
What is an amortization schedule?
A table of every payment on a loan, showing how much goes to interest, how much to principal, and the balance left. On a $320,000 30-year loan at 7.4% it has 360 rows, each with the same $2,215.62 payment.
When do I start paying more principal than interest?
On this loan, at payment 249, about 20 years in. The lower the rate, the sooner the crossover comes.
How much interest will I pay over the life of the loan?
On $320,000 at 7.4% over 30 years, $477,617, if you make every payment as scheduled and never pay extra or refinance. Over 15 years at 6.71% it is $188,431.
Why does my lender statement differ by a few cents?
Lenders round interest each month, and some count days in the month rather than twelve equal months. The schedule here rounds interest to the cent each month and adjusts the final payment so the balance ends at zero, which is the usual convention for a fixed-rate mortgage.
Sources
Mortgage rates: Freddie Mac weekly averages as of . How we calculate.