How Mortgage Payments Work
Why your first mortgage payment is almost all interest, how amortization shifts over time, and what overpaying really saves.
2026-07-20 · 6 min read
A mortgage is an annuity in disguise
A repayment mortgage charges interest on whatever you still owe, then applies the rest of your payment to the balance. Because the payment is fixed, the split between interest and principal moves steadily over the term.
In year one of a typical 25-year loan, roughly three quarters of each payment can be interest. By the final years, almost all of it reduces the balance.
Why term length matters more than people expect
Stretching a loan from 25 to 30 years lowers the monthly payment by a modest amount but adds five extra years of interest on a balance that shrinks more slowly. The total cost difference is often larger than the deposit.
What overpayments actually do
An overpayment goes straight to principal, so every future month's interest is charged on a smaller balance. That is why an overpayment in year one is worth several times the same amount in year twenty.