During which year is the highest interest typically paid in a mortgage?

In a mortgage, the highest interest payment typically occurs in the first year. This is due to the structure of amortizing loans, where the interest is calculated on the outstanding principal balance. At the beginning of the loan term, the principal amount is at its highest, which means that the interest charged for that period is also at its greatest.

As payments are made over time, a portion is allocated toward interest and a portion toward reducing the principal. Because the interest is based on the remaining balance, as the principal decreases with each payment, the interest portion of subsequent payments will also decline. Therefore, while the borrower will continue to pay interest throughout the life of the mortgage, the total interest paid in the first year is significantly higher compared to later years when the principal has been reduced.

This phenomenon is important for borrowers to understand, as it impacts financial planning and the overall cost of borrowing.