Amortization.
In plain English
Your payment never changes, but what it buys does. Interest is charged on the remaining balance, which is biggest at the start, so early payments barely dent the principal. As the balance falls, more of each identical payment goes to principal. The standard formula sets the one fixed payment that exactly clears the balance by the final month.
01Why it matters
It explains why a mortgage balance barely moves in the early years, and why extra principal early in a loan punches far above its weight.
02The math, step by step
A $380,000 mortgage at 7% for 30 years: payment about $2,528. In month one, roughly $2,217 is interest and $311 is principal. The crossover, where principal finally exceeds interest in the payment, doesn't arrive until around year 20.
Illustrative example. The amounts here are hypothetical, chosen to show how the math works, not real quoted rates or figures.
03What this is NOT
Amortization is the arithmetic of interest on a declining balance, not a penalty. But it is why extra principal payments early in a loan punch far above their weight.
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