Main Concept

When you first start paying down your mortgage, a significant percentage of your recurring payment can be interest. As you make each successive payment, the amount of interest paid on each payment decreases and the amount of principal paid increases, until the last payment is almost all principal.

Four parameters determine the total cost of a mortgage: The principal, the interest rate, the frequency of payments, and the amortization period (total time for repayment).

In the example below, explore how the these parameters affect the structure of the mortgage. The black lines are the minimum payment per payment period (for example the monthly payment), the magenta lines are the amount of interest being paid, the blue lines are the amount being paid off of the loan, and the burgundy line (right graph only) is the principal. The left graph shows the value of these over time, while the right graph shows the accumulated principal and interest paid over time.

The magenta and blue curves are exponential functions.

Interest/Equity Split of Mortgage Payments over Time

Cumulative Interest and Principal Paid for Mortgage Payments over Time

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