An amortization schedule shows how each monthly payment splits between interest (going to the bank) and principal (building your equity). In the early years, most of your payment is interest. The "crossover" — where principal exceeds interest in a single payment — typically happens around year 15-18 of a 30-year loan. Once you see this on a chart, you understand exactly why extra principal payments in year one are so powerful.
Worked example: $350,000 loan at 7% for 30 years. Total interest paid over 30 years = $488,280. Payment 1 is $2,041 interest + $287 principal. Payment 360 is $13 interest + $2,315 principal. Crossover happens around payment 196 (year 16).
Why year 1 extra principal is worth so much more than year 15
A $5,000 extra principal payment in month 12 saves about $18,500 in interest over the life of a 30-year loan at 7%. The same $5,000 extra in month 180 (year 15) saves only about $3,400. Front-loading extra principal compounds. The earlier, the better.
How to read the schedule
Your amortization table has four columns: payment number, interest portion, principal portion, and remaining balance. Interest portion = remaining balance × monthly rate. Principal portion = payment - interest. Balance = previous balance - principal. Every month, interest shrinks a tiny bit and principal grows a tiny bit. That is the engine of home equity.
Milestones on a 30-year, 7% loan
- Year 5: ~7% of loan paid off. You've paid 17% of total payments and 93% of those went to interest.
- Year 10: ~17% paid off. Still in the interest-heavy phase.
- Year 15: ~32% paid off. Crossover is happening this year.
- Year 20: ~52% paid off.
- Year 25: ~77% paid off. Final 5 years is almost all principal.
- Year 30: Paid off. Total paid = roughly 2.4x the loan amount.