Why the early years of a mortgage are mostly interest

A level payment on a long loan spends the first years covering interest on a large balance. Equity builds slowly at the start.

The payment is designed to finish on time

A fully amortizing payment is the level amount that brings the balance to zero at the last month. It is not a split that is half principal from the start. The split moves on its own as the balance falls.

On a 30-year loan the balance stays large for a long time, so interest stays large. A 15-year loan uses a higher payment, so more principal leaves every month and the interest years are fewer.

What this means for a move

If you might sell or refinance in a few years, most of the payments you make until then are interest, plus the fees you paid to get the loan. The offer comparison uses a hold period for that reason. It adds upfront fees to the interest you would pay while you keep the loan.

The cheaper offer over seven years is not always the cheaper offer over thirty. Type the hold you actually expect when you compare two lenders.

Where to see the shift

The yearly table lists principal, interest, and the balance at the end of each year, plus interest added up so far. Scroll until the principal column passes the interest column. That year is when the loan starts retiring itself faster than it costs.

Nothing in the table assumes extra payments. This schedule is the required payment only.

This explains how WiseCalculator treats the numbers you type. It is not a lender’s offer and it is not advice for your loan.