Why the first half of your mortgage is almost all interest.
Your payment stays the same every month. What that payment actually buys you changes dramatically over the life of the loan — and understanding why changes how you think about extra payments.
Two people with identical $2,700/month mortgage payments can be building equity at wildly different speeds, just depending on how far into the loan they are. Here's the mechanism.
How amortization actually works
Every mortgage payment splits into two parts: interest (the cost of borrowing the remaining balance) and principal (paying down that balance). Interest is calculated fresh each month, on whatever balance is left. Early on, the balance is huge, so the interest portion is huge — and whatever's left of the fixed payment goes to principal, which is a small slice at first.
As the balance shrinks, month by month, the interest portion shrinks with it — and because the total payment stays fixed, the principal portion grows to fill the gap. Same payment, completely different mix, and the shift compounds on itself the whole way through.
A worked example: $400,000 at 6%, 25-year amortization
| Point in loan | Monthly payment | Interest portion | Principal portion |
|---|---|---|---|
| End of year 1 | $2,577 | $1,967 | $610 |
| End of year 10 | $2,577 | $1,532 | $1,045 |
| End of year 15 | $2,577 | $1,168 | $1,409 |
| End of year 24 | $2,577 | $162 | $2,415 |
Notice the crossover: interest and principal aren't roughly equal until well past the midpoint of the loan — closer to year 13–14 here. For the first several years, the overwhelming majority of every payment is interest — real cost, not equity.
Why this makes extra payments early so powerful
An extra $200 payment in year 1 comes almost entirely off the principal balance — and because interest is calculated on that balance every month going forward, you're not just paying down $200, you're eliminating every future month's interest on that $200, for the rest of the loan. The same $200 extra payment in year 20 does far less work, because there's a lot less remaining loan for it to shrink.
This is the whole logic behind "an extra payment early is worth more than the same payment later" — it's not a rule of thumb, it's a direct consequence of how the interest calculation works.
The Canada-specific twist most explanations skip
In the US, a 30-year fixed mortgage locks in one rate for the entire loan. In Canada, the norm is a 5-year term inside a longer amortization (often 25 years) — meaning your rate resets at renewal, usually every five years, while the remaining balance and remaining amortization schedule just continue from where they left off.
- Your amortization schedule doesn't restart at renewal — you keep the same countdown, just at whatever new rate is available.
- Renewing into a higher rate can meaningfully change your payment, or how much of it goes to principal, without you having done anything wrong.
- This is exactly why Canadian mortgage math needs its own rate assumption, separate from the US 30-year-fixed mental model — they're genuinely different instruments, not the same thing with different numbers.
Compoundfork's projection now runs the real amortization — interest and principal split correctly, home equity tracked separately from cash. Plug in your own rate and term.
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