The mortgage trap

Mortgages are amortized. That's the technical word for "front-loaded with interest." In year 1, of your $2,661 payment, only $328 goes to actually owning more of your house. The other $2,333 is interest — money you'll never get back, that goes straight to whoever holds your loan. By year 25, the ratio has flipped. But by then you've already paid most of the interest you'll ever pay, and you don't actually own the house yet — the bank does, until you make the final payment.

Set the loan terms. The chart shows the brutal reality of who owns what when.

What this means in practice

Three under-discussed implications:

If you sell before year 10, you've paid almost nothing in principal and lose most of your equity to closing costs and broker fees. The "renters throw away money" cliché ignores that early-stage homeowners are throwing away interest, taxes, insurance, and maintenance — often more than rent in equivalent housing. The math flips somewhere between year 7 and year 10 in most markets.

The 15-year vs 30-year decision is enormous. A 15-year mortgage at the same rate has higher monthly payments but pays roughly half the total interest. The "extra" you save by going 30-year is mostly transferred to the bank as interest. If you can afford the 15-year payment, the 30-year is a $200,000+ gift to your lender.

Refinancing isn't free. Every refi resets the amortization clock. The "lower rate" you got might be erased by being back at the front-loaded interest portion of a new schedule. Run the math on remaining-term basis, not just rate.