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When you take out a mortgage, your monthly payment stays the same, but the breakdown between principal and interest changes dramatically over time. This is called amortization. Understanding how it works can save you tens of thousands of dollars.

Amortization is the process of spreading out a loan into a series of fixed payments. Each payment covers both interest and principal, but the proportion changes over the life of the loan. Think of it this way: in the early years, you're mostly paying for the privilege of borrowing money. In the later years, you're actually paying down what you borrowed.

In the early years of your mortgage, most of your payment goes toward interest: | Year | Principal Paid | Interest Paid | |------|----------------|---------------| | 1 | ~25% | ~75% | | 15 | ~50% | ~50% | | 30 | ~95% | ~5% | This is why making extra principal payments early in your loan term can save you tens of thousands of dollars. Even an extra $100/month toward principal in the first 5 years can shave years off your mortgage and save thousands in interest.

### 1. Make Extra Payments Early Even small extra payments in the first few years have an outsized impact on your total interest paid. ### 2. Compare Loan Terms A 15-year mortgage has higher monthly payments but saves significantly on interest compared to a 30-year term. ### 3. Understand Refinancing If interest rates drop, refinancing can reset your amortization schedule at a lower rate — but watch out for closing costs. When you refinance, you start the amortization process over. Make sure the interest savings outweigh the costs.

Numbers tell the story better than words. Use our calculator to see exactly how your payments break down over time and experiment with different scenarios. Open Loan Amortization Calculator