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Why Is Most Of My Mortgage Payment Going To Interest?

Why Is Most Of My Mortgage Payment Going To Interest?

Couple looking at mortgage finances

Couple looking at mortgage finances

Another paycheque is coming out of your bank account and going straight to your mortgage. It feels like a neverending story — year after year of paying your mortgage so you can have a roof over your head. “Has it been 25 years yet?”, you question yourself. Hate to break it to you but you may still have a long way to go. If you purchased your home with a small down payment and are paying a high-interest rate then you’re making payments that mostly go to cover the amount of your interest right now. So why are most of your mortgage payments going to interest?

It all depends on your amortization period

Like anything, if you borrow money from someone or somewhere, they usually charge a percentage of the overall loan as interest. After all, they are giving you money upfront so you can afford to make a large purchase. The lenders have to make money somehow, right!? That’s where the interest rate comes in.

Your mortgage loan is amortized, which means the repayment is calculated over a predetermined length of time through regular mortgage payments. Each payment you make represents a combination of interest and principal repayment. The interest rates will change over the amortization period as your mortgage comes up for renewal each term. If you choose the maximum amortization period of 25 years, you can still decrease the time it takes to pay off your loan by increasing your payment frequency or by making lump sum payments if your mortgage terms allow you to do so.

Should you look for a shorter or longer amortization period?

A shorter amortization period means that the mortgage payments you make will be higher than those made throughout a longer amortization period. This is because more of your payment goes towards paying down your principal balance over a condensed amount of time. When you choose a shorter amortization period, you can be mortgage-free sooner and build equity in your home at a rapid rate. Most importantly, you will pay much less in interest costs throughout your loan because you are paying it back relatively quickly. A longer lifetime is desirable but when it comes to the life of your mortgage, shorter is better.

Some people prefer a longer amortization period because spreading their mortgage installations out over an extended timeframe lowers the cost of those regular loan payments. However, when you choose a longer amortization period, you will pay the principal balance at a slower rate. This means it also takes longer to build up equity in your home – and may mean paying higher interest rates over the prolonged amortization period.

It all depends on your financial situation. Working with a mortgage broker like myself, Darren Robinson can help to determine the best amortization period that you can comfortably afford while still maintaining your current lifestyle.

Mortgage rates will be going up

During the pandemic, mortgage rates were extremely low. But they are rising, causing a concern that some people may not be able to afford their mortgage payments if costs go up. That’s where the “Stress Test” comes into play. When you get pre-approved for a mortgage, your lender assesses your finances to ensure that you will be able to afford your mortgage if interest rates go up by 2% over and above your current rate. However, your life may have changed since getting pre-approved and you may have more bills, more loans to pay off, or a growing family to support. Whatever is happening in your life, if it feels like all your money is going towards interest it might be time we take a look at refinancing our mortgage to help relieve a little financial stress. If you’re working towards buying your first home, taking a look at the mortgage calculator on my website will help you to determine how much of a mortgage loan you can afford and how much interest you will pay based on various amortization options.

So, how can you lower your mortgage rates and reduce all that interest building up?

Make a larger down payment on your home 

When you first purchase your home, it’s a good idea to have at least a 20% down payment set aside to put towards the overall cost of the house. Doing so helps you to secure lower interest rates as opposed to having a 5% down payment which is the minimum in many cases. The larger the upfront payment you put towards the purchase the less of a loan you will need, and the less interest you will pay because of that. In addition, showing that you can afford to put down a larger amount of money, gives the lender confidence that you are less of a risk in terms of not being able to make your mortgage payments in the future.

Refinance your mortgage

If your mortgage term is coming to an end, it’s always a good idea to shop around for better rates. Your lender may give you an offer to keep you as a client but it’s okay to shop around. You don’t have to renew with the same lender. Working with a mortgage broker, like myself, I can help you find the best mortgage rates out there while making sure you have the most mortgage options as well. Why bother paying for more when you don’t have to?


If you purchased your home and discovered that you don’t need all that land or all those extra bedrooms in your house, it might be time to think about downsizing to a condo or a smaller house. House prices in today’s market are still high but we have seen a cool-down in sales compared to last month. After all, people still need to buy houses! We all need somewhere to live. Get an appraiser to check out your house to find out how much your home is worth. Many real estate agents offer free home consultations which will let you learn how much you could sell your home for based on the current market. Maybe by selling, you could pay off your existing mortgage and not have to worry about a mortgage on your new home! Sounds glorious right!?

Whatever approach you take, work with a reputable mortgage broker like myself, Darren Robinson.

The longer you remain in debt, the more the cost of that debt will increase as each year goes by if you are having trouble making payments. It can be tricky to navigate the mortgage world, especially as a first-time home buyer. Luckily, you’re in the right place. As a mortgage broker AND financial advisor, I can help you navigate your mortgage options while getting you the best rate possible. No one wants to pay higher interest rates which is why now is the time to lock in a low rate before rates go up. If you have any questions, concerns, or general inquiries, please don’t hesitate to give me a call at 705-315-0516 or click here to book a meeting with me to discuss your specific situation and options one-on-one. Working with a mortgage broker is free after all so why not take advantage of a little guidance and advice.

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