Why the first 5 years of a mortgage are mostly interest
On a $400K, 30-year, 7% mortgage, your first monthly P&I is $2,661 — but $2,333 of it is interest and only $328 is principal. By year 15, you've paid the bank $478K and still owe $260K of principal. This is why 'just keep paying the minimum' is a strategy designed for the lender, not you.
- • Extra principal in year 1 saves ~30× more interest than the same dollar in year 25.
- • Bi-weekly payments (half the monthly, every 2 weeks) = 26 payments/yr = 1 extra full payment per year.
- • Recasting (lump-sum principal + re-amortize) lowers payment but doesn't accelerate payoff. Extra monthly does.
When NOT to pay extra on a mortgage
If you have any unsecured debt above ~9% (credit cards, personal loans), kill that first. If your employer matches 401(k), max the match before extra principal — that's a guaranteed 50–100% return vs 7%. If rates drop 1%+ below your mortgage, refinance instead of paying extra. Mortgage interest is tax-deductible (above the standard deduction) which lowers the effective rate by your marginal tax bracket × ~50%.
Related guides
Long-form playbooks on the same topic, written by the RevenueLab editorial team.
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Read the guideFAQ
How is mortgage amortization calculated?
Each month, interest = (current balance) × (annual rate ÷ 12). Principal = your payment − that interest. The next month, your balance is lower so interest is lower and more of the payment hits principal. Compounded over 360 months on a 30-yr.
Does paying extra on principal save money?
Yes — and the impact is larger than most people expect. On a $400K mortgage at 7%, an extra $200/mo saves about $112K in interest and pays the loan off 6.5 years early. The earlier in the loan you start, the bigger the impact.
What's the difference between amortization and depreciation?
Amortization spreads a loan principal across scheduled payments. Depreciation spreads a fixed asset's cost across its useful life for accounting purposes. Same math (declining-balance or straight-line), totally different application.
Why is my mortgage payment more than P&I?
Your monthly mortgage usually includes PITI: Principal, Interest, Taxes (property tax escrow), and Insurance (homeowners + PMI if applicable). The amortization calculator shows P&I only — taxes and insurance change yearly and aren't part of the loan math.
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June 2026. We re-check every figure on the platform on a rolling quarterly cycle.
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