How a mortgage payment is built
Where every dollar of your monthly payment actually goes — and why the early years are mostly interest.
5 min readReviewed Apr 1, 2026
Quick answer
Your monthly payment is fixed, but the split between interest and principal changes every month. Early on, almost all of it is interest. By the end, almost all of it is principal.
The formula behind the payment
A standard mortgage uses M = P × r(1+r)^n / ((1+r)^n − 1), where P is the loan amount, r is the monthly interest rate, and n is the number of monthly payments.
The output is a single number that stays constant for the life of the loan — even though what it covers shifts every month.
Inside a single payment
1. Interest portion
Current balance × monthly rate. This is what you pay just to borrow the money for the month.
2. Principal portion
Whatever's left after interest. This actually pays down the balance.
3. Repeat
Next month, the balance is slightly smaller, so the interest portion is slightly smaller, so more goes to principal.