Mortgage amortization schedule

What it's for

It shows how each mortgage payment splits between principal and interest, and how the balance falls over time. At first you mostly pay interest.

Note

It's a fixed-rate, constant-payment (French) amortization, the mortgage standard. It ignores fees, insurance or variable rates.

Why the early payments are almost all interest

It is not the bank being unkind: it is arithmetic. Each month's interest is worked out on the debt still outstanding, and at the start the outstanding debt is everything. With a constant instalment, the interest share is therefore huge in the first month and the capital share is whatever is left over; as the debt falls, interest falls and the capital share grows, faster and faster.

The practical consequence surprises many: after five years of a twenty-five-year mortgage, the debt has not fallen by a fifth but by far less. It is also why reselling a home a few years after buying is almost always a losing operation, unless the property price has risen.

Where the money in the term really goes

Stretching the term lowers the instalment, and that looks like a bargain until you look at the total. The mechanism is the one above: if the debt falls more slowly, interest is charged on a larger capital for more years, and the overall cost grows non-linearly. Going from twenty to thirty years can lighten the instalment by a fifth and raise total interest by half.

The right choice is therefore not «as short as possible», but the shortest term the household budget can breathe with: an instalment stretched too tight is the fastest way to get into trouble at the first setback, and in that case the term gets extended anyway, but on the terms available at the worst possible moment.

French and Italian amortisation

The constant instalment on this page is the «French» plan, virtually universal in mortgages. There is also the «Italian» plan, where the capital share is constant and the instalment starts high and falls every month: it costs less interest overall, but demands the heaviest payments right at the start, exactly when there are removal and furniture bills. It is rare at a bank and common in private lending.

There is then a detail that changes the sums on real mortgages: a variable rate. There the instalment is recalculated at every move of the index, and a plan printed at the start tells a story that is no longer true six months later.

What this plan does not include

Capital and interest only. A real instalment may also carry fire insurance (compulsory in some countries), any life policy the bank requires, the tax withheld on release and the collection charges. Outside the instalment sit valuation, arrangement fees and the notary, paid once but heavy.

The figure that brings them all together is the annual percentage rate of charge, and it is the only one comparable across offers: two mortgages with the same nominal rate can have very different APRs.

Nearby tools

To find out how much you can borrow there is How much mortgage can I afford; to see the effect of extra payments, Early repayment. The comparison with renting is in Rent or buy, the debts other than a mortgage in Debt payoff time and the effective rate in Nominal rate and APR.