How Does Amortization Work?

Transcript

Your mortgage payment is the same every month. But what's inside it shifts dramatically over time — and early on, it's not what most people expect. Amortization means one fixed payment, split two ways. Part covers interest, part pays down what you owe. And that split flips over the life of the loan. On a three hundred thousand dollar loan at six and a half percent, the payment is about eighteen hundred ninety-six dollars. In month one, sixteen hundred twenty-five of that is pure interest. Only two hundred seventy-one actually pays down the loan. Because interest is front-loaded, it adds up. Pay this loan on schedule for thirty years and you'll pay roughly three hundred eighty-three thousand in interest — more than the three hundred thousand you borrowed. The mix flips slowly. For years, most of your payment goes to interest. Only later does the balance start falling fast, and your equity builds. Two things to know. Because interest is front-loaded, extra principal early saves the most. And refinancing into a new thirty-year loan restarts that interest-heavy clock. See your own amortization schedule at worthune.com. Worthune turns money decisions into math you can see and re-run — every assumption named. A friend who's good at math. One note: this is educational only, not financial advice. The figures are illustrative. Your situation is unique — talk to a professional before you act.

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