The interest is about 70% of the total payment, but this will fall each month until it is near 0% at the end of the loan.
Comparison: 30-year versus 15-year mortgage
Now assume you have a fixed rate mortgage of $150,000 amortized over 15 years at 3.75%. (A loan with a 15-year amortization period likely will command a lower interest rate than one with a 30-year amortization period.) The monthly payment is $1,090.83, of which $622.08 will go toward the principal, and $468.75 to interest. While the payment is roughly one-and-a-half times that of the 30-year mortgage, the portion directed to principal is approximately three times that of the 30-year loan.
While a 15-year-mortgage may sound good, the monthly payment may be too high for you. In this situation, you can take a 30-year mortgage and make an additional payment toward the principal each month.
Over time, this may reduce the number of payments you make; every extra dollar you pay into the mortgage will reduce the amount you pay in interest on the remainder of the loan.
If you aren’t certain whether this approach is for you, discuss it with me. I can help you sort through your options.
MORTGAGE RATE UPDATE