Where Your Mortgage Payment Actually Goes (Year by Year)

Most of your early payments are interest

On a $320,000 mortgage at 6.75% over 30 years, your monthly payment is $2,076. But in the first year, here is where that money actually goes:

That is not a typo. In year one, 86 cents of every dollar you pay goes to the bank as interest. Only 14 cents reduces your actual loan balance.

How the split changes over time

The good news: this ratio flips over the life of the loan. Here is how the principal vs. interest breakdown shifts every 5 years:

It takes roughly 20 years before more than half of your payment goes to principal. This is why the first decade of homeownership builds equity so slowly.

The total cost is staggering

Over 30 years on a $320,000 loan at 6.75%, here is the full picture:

You pay $426,000 in interest on a $320,000 loan. The bank earns more than you borrowed. At lower rates (like 3.5% in 2021), total interest would have been $197,000. The difference between 3.5% and 6.75% is $229,000 over the life of the loan.

How extra payments change the picture

Adding $300/month extra to the same loan transforms the math:

Here is how different extra payment amounts compare:

An extra $1,000/month saves $222,000 in interest and cuts the loan down to 12 years and 8 months. The bar literally shrinks by half.

Why the first 5 years matter most

Extra payments have the biggest impact early in the loan because you are reducing the principal that future interest is calculated on. A $5,000 lump sum in year 1 saves $18,500 in interest. The same $5,000 in year 15 only saves $6,200.

Run your own numbers

Every mortgage is different. Your rate, term, and balance determine exactly how much extra payments save. Use our mortgage calculator to see the full amortization schedule with and without extra payments for your specific loan.

Want to see how these numbers apply to rental properties? Our rental ROI calculator includes the full mortgage breakdown as part of your cash flow analysis.