Do mortgage payments get cheaper over time?

This is a common question for homeowners and prospective home buyers alike. The short answer is yes, mortgage payments do generally get cheaper over the life of the loan due to amortization. However, there are some important factors that impact how much mortgage payments decline.

How amortization works

An amortized mortgage has equal monthly payments that consist of both principal and interest. In the early years of the mortgage, the monthly payment is mostly interest. As the loan balance is paid down over time, the portion going toward principal increases while the interest portion decreases. This causes the monthly payment to gradually get cheaper in real dollar terms.

For example, on a $200,000 mortgage at 4% interest, the monthly payment would be about $955. In the first month, $666 would go toward interest and $289 toward principal. After 10 years and 120 payments, the balance would decline to around $158,000. At that point, the monthly payment would still be $955 but only $527 would go toward interest while $428 went to principal.

This pattern continues until the loan is fully paid off. So in short, amortization means paying down principal over time leads to less interest being charged each month. And that’s what causes the payment to get cheaper.

Factors impacting mortgage payment declines

There are several key factors that impact how quickly mortgage payments decline due to amortization:

  • Interest rate – The higher the rate, the larger the interest portion of the payment will be early on. This means higher rates lead to faster declines in payments over time.
  • Loan term – Longer terms spread out amortization over more years, leading to slower payment declines. Shorter terms mean faster declines each month.
  • Mortgage type – Fixed-rate mortgages see gradual declines each month. Adjustable-rate mortgages can see larger payment drops at adjustment periods.
  • Extra payments – Making extra principal payments speeds up amortization and payment declines.
  • Appreciation – Home price appreciation boosts equity to offset declining payments.

Understanding how these factors work together can help buyers choose terms and strategies that fit their financial goals and circumstances.

Payment declines on a fixed-rate mortgage

Fixed-rate mortgages have level payments that consist of fixed principal and declining interest over time. The rate stays constant for the entire loan term.

For example, on a $200,000 loan at 4% fixed for 30 years, the monthly principal and interest payment would start at $955 and decline according to this amortization schedule:

Year Monthly Payment Interest Portion Principal Portion
1 $955 $666 $289
5 $955 $592 $363
10 $955 $527 $428
15 $955 $448 $507
20 $955 $351 $604
25 $955 $235 $720
30 $955 $95 $860

This shows how the interest portion declines gradually each month while the principal portion increases. After 360 payments, the loan would be fully paid off.

Faster declines with a 15-year term

Shortening the loan term speeds up amortization and the rate of payment declines. For example, on a 15-year $200,000 mortgage at 4%, the payment starts at $1,432 per month and declines according to this schedule:

Year Monthly Payment Interest Portion Principal Portion
1 $1,432 $800 $632
5 $1,432 $617 $815
10 $1,432 $341 $1,091
15 $1,432 $41 $1,391

With the shorter term, the loan is paid off in 15 years with more rapid declines in the interest portion of the payment each month.

Effect of interest rates

Higher rates also accelerate declines in mortgage payments. At a 6% rate on a 30-year $200,000 loan, the payment would start at $1,199 and decline on this schedule:

Year Monthly Payment Interest Portion Principal Portion
1 $1,199 $1,000 $199
5 $1,199 $859 $340
10 $1,199 $672 $527
15 $1,199 $444 $755
20 $1,199 $174 $1,025
25 $1,199 $58 $1,141
30 $1,199 $0 $1,199

The higher 6% rate adds about $244 to the initial monthly payment but accelerates the drop in interest paid each month.

Declines with adjustable-rate mortgages

Adjustable-rate mortgages (ARMs) have interest rates that fluctuate over the loan term. This causes the principal and interest payment to change at certain intervals as the rate resets.

For example, a 5/1 ARM might start with a 5% rate for the first 5 years, then adjust annually based on market conditions. The payment declines during the fixed-rate period, then could drop further at each adjustment if rates fall.

Year Interest Rate Monthly Payment
1 5.00% $1,073
5 5.00% $1,012
6 4.25% $946
7 4.00% $917
8 3.75% $887

If rates rise at adjustment periods, payments could increase. The uncertainty around future payments makes ARMs riskier than fixed-rate mortgages.

Impact of extra payments

Many lenders allow extra principal payments to be made, shortening the loan term. This accelerates declines in mortgage payments over time.

For example, on a $200,000 fixed-rate loan at 4%, the regular monthly payment would start at $955. By paying an extra $200 each month, the term could shorten to around 22 years and the interest portion would decline faster:

Year Monthly Payment Interest Portion
1 $1,155 $666
5 $1,155 $518
10 $1,155 $341
15 $1,155 $124
22 $1,155 $0

This shows how extra principal payments speed up the drop in interest paid each month. However, some mortgages charge prepayment penalties that make this strategy expensive.

Offsetting factors

While mortgage payments generally decline over time, other costs associated with homeownership tend to rise. Property taxes, insurance, utilities, and maintenance represent expenses that increase with inflation and as homes age.

Homeowners also miss out on interest or investment returns by having large amounts tied up in home equity. This represents an opportunity cost that should be factored in.

Additionally, the nominal dollar payment remains constant on a fixed-rate mortgage, so the real purchasing power of the payment declines with inflation. Adjustable-rate mortgages keep pace with inflation better in this regard.

The impact of home price appreciation

As mortgage payments decline slowly over time, home prices usually appreciate, sometimes rapidly. This price growth builds home equity and provides a key financial benefit.

For example, a $200,000 home that appreciated 3% per year would be worth around $340,000 after 20 years. The loan balance would decrease to about $150,000 in that time. So $190,000 of equity would accrue from price appreciation, likely offsetting any decline in monthly payments.

Home price growth varies greatly by market and economic conditions, so there is uncertainty in relying on this to offset payment declines.


In summary, mortgage payments generally do get cheaper over the loan term due to amortization slowly reducing the interest portion each month. But many factors impact the rate of payment declines:

  • Shorter loan terms, higher rates, and extra payments accelerate declines.
  • Longer terms and lower rates mean slower drops in payments.
  • Adjustable-rate mortgages can see larger payment declines at adjustment periods.
  • Home price appreciation is needed to offset real declines in payments.
  • Other ownership costs tend to rise with inflation over time.

Understanding these dynamics allows buyers to choose loan terms and strategies tailored to their financial situation and goals. While cheaper nominal payments lighten the monthly burden over time, the real costs of homeownership involve more factors.

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