Interest

· 2 min read
Interest is the cost of borrowing money — it’s the fee your lender charges for letting you use their capital, and on a 30-year mortgage,…

Interest is the cost of borrowing money — it’s the fee your lender charges for letting you use their capital, and on a 30-year mortgage, you’ll typically pay more in interest than the amount you actually borrowed. That’s not a typo. That’s just how amortization math works.

How Mortgage Interest Adds Up

Mortgage interest is calculated daily on your outstanding principal balance. Each month, the lender divides your annual rate by 12 and multiplies it by your remaining balance. Early in the loan, that balance is huge, so interest eats most of your payment. As the balance shrinks, more of your payment shifts to principal.

This is why a 30-year loan costs so much more than a 15-year loan — it’s not just the extra years, it’s the slower principal paydown keeping the interest charges high for longer.

Dollar Example

Borrow $350,000 at 7.00% for 30 years. Your total interest paid over the life of the loan: $488,281. You’re paying $488K to borrow $350K. On a 15-year loan at 6.50%, total interest drops to $197,528. That’s a $290,753 difference. Check the full breakdown on our amortization schedule.

Watch Out

Mortgage interest is tax-deductible on loans up to $750,000 (or $1M for loans originated before December 2017), but only if you itemize deductions. The 2017 tax reform roughly doubled the standard deduction, so fewer borrowers benefit from this than you’d think. Don’t count on the tax deduction when calculating affordability.

Also, interest costs vary dramatically by loan term. Before defaulting to a 30-year mortgage, check whether a 20 or 25-year term fits your budget. The monthly payment increase is often manageable, and the interest savings are massive. Use our mortgage calculator to compare terms.

Frequently Asked Questions

How can I pay less interest on my mortgage?

Three strategies: get a lower rate (shop multiple lenders), choose a shorter loan term, or make extra principal payments. Adding $200/month to a $350,000 loan at 7% saves over $115,000 in interest and pays off the loan 6.5 years early. Run your own scenario on our loan comparison tool.