In short: On a $300,000 mortgage at 6.5% over 30 years, the payment is $1,896.20 every month. In month one, $1,625.00 of it is interest and $271.20 reduces the debt. Principal does not overtake interest until payment 233, more than 19 years in. Nothing is being front-loaded. Interest is simply charged on what you still owe, and early on you owe almost all of it.
The one rule that produces the whole pattern
Each month, the lender charges interest on the balance outstanding. That is the entire mechanism.
At 6.5% a year, the monthly rate is 6.5% divided by 12, or 0.541667%. On a $300,000 balance that is $1,625.00. The payment is $1,896.20, so $271.20 is left to reduce the balance, which falls to $299,728.80.
Next month the same rate is charged on a slightly smaller balance: $1,623.53 of interest, leaving $272.67 for principal. The interest fell by $1.47 and the principal rose by exactly the same $1.47, because the payment did not change.
That exchange repeats 360 times. Every payment shrinks the balance, so the next month's interest is a little lower and the principal portion a little higher. The schedule is not a plan the lender chose. It is what a fixed payment does when interest is charged on a declining balance.
How slowly it turns
The principal portion grows at the monthly interest rate, which makes it compound. It starts small and accelerates.
| Point in the loan | Interest in the payment | Principal in the payment | Balance after |
|---|---|---|---|
| Payment 1 | $1,625.00 | $271.20 | $299,728.80 |
| Payment 2 | $1,623.53 | $272.67 | $299,456.13 |
| Payment 233 (year 19.4) | $946.51 | $949.69 | $173,791.39 |
| Payment 257 (year 21.4) | $815.05 | $1,081.15 | $149,389.63 |
| Payment 359 | $20.40 | $1,875.80 | $1,890.67 |
Two milestones in that table surprise most borrowers.
Payment 233 is the first where principal exceeds interest. It arrives in year 19 of a 30-year loan.
Payment 257 is where the balance first drops below half the amount borrowed. It takes more than 21 years to repay the first $150,000 and under nine to repay the second.
Over the whole loan, the borrower pays $382,636.71 in interest on $300,000 borrowed. In the first twelve months alone, $19,401.28 goes to interest and $3,353.12 to principal.
Why an extra payment early is worth so much
The same mechanism that makes early payments mostly interest makes early extra payments powerful. An extra dollar of principal in month one removes a dollar from the balance for the remaining 359 months, so it avoids interest on that dollar every month until the end.
An extra dollar paid in year 25 avoids only five years of interest on it. The size of the extra payment matters less than when it is made. This is also why refinancing into a new 30-year loan late in a mortgage is costlier than the lower rate suggests: it restarts the schedule at the interest-heavy end.
Where the payment figure comes from
The payment is the amount that brings the balance to exactly zero after the final period. For a loan of P at monthly rate r over n payments:
Payment = P × r ÷ (1 − (1 + r)^−n)
With P = 300,000, r = 0.065 ÷ 12 and n = 360, that gives $1,896.20407, charged as $1,896.20. Because a real payment cannot include fractions of a cent, the rounding has to be absorbed somewhere, and it lands in the last payment, which is covered in why the final payment is different.
What this does not mean
It does not mean the lender earns more by design in the early years, or that the interest is "paid first". The lender charges the same rate on every dollar outstanding in every month. A borrower who pays off the loan in year five has paid exactly the interest that accrued on the balance they held during those five years, no more.
It also does not apply to every loan. Interest-only loans, loans with a balloon payment, and credit cards with a minimum payment follow different schedules.
Try it with your own numbers
The mortgage calculator and loan calculator show the full schedule for any amount, rate and term. The mortgage payoff calculator shows what a given extra payment saves, and the biweekly mortgage calculator shows the effect of paying half the monthly amount every two weeks. The refinance break-even calculator tests whether restarting the schedule is worth it.
Sources
- Regulation Z (Truth in Lending), 12 CFR Part 1026, the federal rules governing how the cost of consumer credit is computed and disclosed. ecfr.gov/current/title-12/chapter-X/part-1026