The Column Everyone Skips
Open a loan amortisation schedule and there are four columns: payment number, interest, principal, and remaining balance.
Most people look at the payment amount and the final total. The column that actually explains the loan is the split between interest and principal — and specifically, how that split changes over the term.
Here's a €200,000 loan at 5% over 25 years, payment of about €1,169:
| Payment | Interest | Principal | Balance |
|---|---|---|---|
| 1 | €833 | €336 | €199,664 |
| 60 | €752 | €417 | €180,008 |
| 150 | €580 | €589 | €138,747 |
| 240 | €303 | €866 | €72,024 |
| 300 | €5 | €1,164 | €0 |
In month one, 71% of your payment is interest. By month 150 the split has crossed over. By the end, almost none of it is.
Every practical decision about a loan follows from this curve.
Why the Split Shifts
The mechanism is simple. Interest each period is calculated on the outstanding balance:
interest this month = balance × (annual rate / 12)
Month one: €200,000 × (0.05/12) = €833.
The payment is fixed, so whatever isn't interest reduces the balance. A smaller balance next month means less interest, which means more of the same fixed payment goes to principal. The effect compounds — slowly at first, then faster.
This is why the balance curve is convex rather than linear. You're not paying off 1/300th of the loan each month. You're paying off a fraction that grows every period.
The Loan Planner generates the full schedule:
- Enter the loan amount, rate and term.
- Generate the amortisation table.
- Read the interest and principal columns, not just the payment.
The Crossover Point
The month where principal first exceeds interest is a useful single number for understanding a loan's shape.
For a 25-year loan at 5%, it falls somewhere around year 12–13. For a 30-year loan at the same rate, later. For a 15-year loan, much earlier — within the first few years.
Two rules of thumb:
- Higher rate → later crossover. More of each payment is consumed by interest for longer.
- Longer term → later crossover, and disproportionately so.
The crossover point tells you when the loan starts working for you rather than against you. Before it, most of your money is rent on borrowed capital. After it, most of it is buying equity.
It also explains why refinancing or moving house after a few years of a long mortgage feels like you've made no progress. You haven't, in balance terms — the schedule was designed that way.
Why Early Overpayments Are Worth So Much More
An extra payment reduces the balance. A reduced balance reduces every subsequent interest calculation. The earlier you do it, the more months there are to benefit.
Take the same €200,000 at 5% over 25 years and add a single €5,000 overpayment:
- In year 1: the €5,000 avoids interest on that amount for 24 remaining years
- In year 15: it avoids interest for 10 years
- In year 24: it avoids almost nothing
The interest saved from an early lump sum can substantially exceed the lump sum itself over a long term. The same money applied late saves a fraction of that.
Regular small overpayments compound similarly. An extra €100 a month from the start of a 25-year loan typically shortens the term by several years and saves tens of thousands in interest — the exact figures depend on rate and term, which is what the schedule is for.
Term reduction versus payment reduction
When you overpay, lenders typically offer two options:
Reduce the term. Keep the same monthly payment, finish earlier. Maximises interest saved.
Reduce the payment. Keep the same end date, pay less each month. Improves cash flow, saves much less interest.
These are very different outcomes from the same overpayment. Lenders often default to reducing the payment, which is the option that costs you more. If your goal is minimising total interest, specify term reduction explicitly.
Reading the Schedule for Decisions
Should I overpay or invest?
Overpaying a loan produces a guaranteed return equal to the interest rate — you avoid paying that rate on the amount overpaid. Investing produces an uncertain return.
The comparison isn't just "rate versus expected return." Consider:
- Overpayment is a risk-free, tax-free return in most jurisdictions
- Investment returns are uncertain and often taxed
- Overpaid money is generally locked up unless the loan has a drawdown facility
- Any tax relief on loan interest reduces the effective rate you're saving
Broadly: a high-rate loan is worth overpaying before investing; a low-rate one is a closer call. Check whether early repayment charges apply — they can eliminate the benefit entirely.
Should I refinance?
The schedule tells you what you'd be giving up. Refinancing restarts the amortisation curve — a new loan begins at the interest-heavy end again, even if the rate is lower.
Compare total remaining cost on the current schedule against total cost of the new loan, including fees. The monthly payment comparison alone is misleading, because a lower payment often comes from a longer term.
What's the real cost of a longer term?
Run the schedule at two terms and compare the total interest column. The monthly saving is visible immediately; the total cost difference usually isn't, and it's often several times larger than people expect.
What the Schedule Doesn't Show
Fees. Arrangement fees, valuation fees, legal costs, early repayment charges. None appear in an amortisation table, and they can change the comparison between two loans substantially.
Rate changes. A standard schedule assumes a fixed rate for the full term. For a variable-rate loan, or a fixed period followed by a reversion rate, the schedule after the fixed period is a projection based on an assumption.
Payment timing. Schedules typically assume payments in arrears at regular intervals. Some products differ.
Insurance and bundled products. Payment protection or similar add to the amount financed.
Inflation. A fixed payment falls in real terms over a long loan. In year 20 of a 25-year loan, that €1,169 is worth considerably less in purchasing power than it was in year one. This works in the borrower's favour and doesn't appear anywhere in the table.
Practical Tips
Look at the crossover point when comparing two loans. It tells you more about the shape than the headline rate.
Check early repayment terms before assuming you can overpay. Some products cap annual overpayments or charge for exceeding them.
Specify term reduction, not payment reduction, when overpaying to minimise interest.
Compare total cost, including fees, not monthly payments.
Re-run the schedule after any change — a rate change, an overpayment, a term adjustment. The curve shifts and the old schedule no longer applies.
Keep the schedule. Comparing your actual balance against the projected one catches administrative errors, which do happen.
FAQ
Why is most of my early payment interest? Because interest is calculated on the outstanding balance, which is at its largest at the start. As the balance falls, the interest portion falls with it.
When does principal exceed interest? Depends on rate and term — typically somewhere in the second half of a long mortgage, earlier for shorter terms and lower rates.
Is it better to overpay early or late? Early, substantially. An early overpayment avoids interest for every remaining month; a late one avoids very little.
Should I reduce the term or the payment when overpaying? Term reduction saves more interest. Payment reduction improves monthly cash flow. Lenders often default to the second — specify if you want the first.
Does refinancing reset the amortisation curve? Yes. A new loan starts at the interest-heavy beginning again, which is why a lower rate doesn't automatically mean lower total cost.
What's not in an amortisation schedule? Fees, rate changes on variable products, insurance, and the effect of inflation on the real value of fixed payments.
The Takeaway
An amortisation schedule isn't a formality attached to the loan agreement — it's the document that answers every practical question about overpaying, refinancing, and choosing a term. The interest column is where the answers are, and reading how it declines across the term makes the timing of every decision obvious.
Generate a full repayment schedule free with the Loan Planner at sadiqbd.com — no sign-up, instant results. This article is general information, not financial advice; consult a qualified adviser about your own borrowing.
