Is it true that you reach 50% equity on a 30-year mortgage after ~22 years?

You reach 50% equity on a 30-year mortgage after ~22 years

How do extra payments target principal directly, skipping all future interest?

Extra payments target principal directly, skipping all future interest

Is it true that the amortization formula dates to Renaissance-era banking?

The amortization formula dates to Renaissance-era banking

First payment: 80% interest

How amortization really works

Why your first mortgage payment is mostly interest — and how banks legally structure this.

Quick answer

Amortization is the process of paying down a loan in equal monthly payments where each payment splits between interest (decreasing) and principal (increasing). On a 30-year mortgage at 7%, the first month's payment is roughly 75% interest and 25% principal; by year 20, the ratio is reversed. This is why early extra payments save dramatically more interest than late ones.

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Key takeaways

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On a 30-year mortgage at 6%, 82% of the first payment is interest
You reach 50% equity on a 30-year mortgage after ~22 years
Extra payments target principal directly, skipping all future interest
The amortization formula dates to Renaissance-era banking

Amortization means spreading a loan into equal monthly payments over time. Every payment covers two things: interest (the cost of borrowing) and principal (paying back what you owe).

The tricky part: early payments are mostly interest. With a 30-year, $300,000 loan at 6%, your first payment of $1,799 breaks down as:

Interest: $1,500 (6% ÷ 12 months × $300,000)
Principal: $299 (just 17% of the payment)

By year 20, the same $1,799 payment is:

Interest: $800
Principal: $999

By year 29, it's mostly principal. This is why selling or refinancing in the early years leaves you owing nearly as much as you borrowed.