![]() If you pay extra on your loan early into the term it means the associated debt is extinguished forever, which means a greater share of your future payments will apply toward principal. By the end of your loan term, the majority of each payment will be going toward principle. With each successive payment, you are putting in a little more toward principle and a little less toward interest. However, since your loan is structured for equal payments, that means that you're just shifting the ratio, not actually paying less each month. With each payment, you will reduce the principle balance and, therefore, the amount of interest you have to pay. Therefore, at the beginning of your loan, you may owe a couple hundred thousand dollars and will still have a hefty interest charge. The reason that the majority of your early payments consist of interest is that for each payment, you are paying out interest on the principle balance that you still owe.
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