What generally happens to the amount applied to principal over the life of a loan?

As a loan is paid down over time, particularly with a fixed-rate mortgage, the portion of each payment that is applied to interest decreases, while the portion that is applied to the principal increases. This happens because the interest charged is calculated on the remaining loan balance. As the principal balance declines with each payment, the interest owed on that lower balance is also less, allowing more of the payment to go towards reducing the principal.

This dynamic is a key feature of amortized loans, where the structure is such that borrowers pay the same amount each month, but the breakdown between interest and principal shifts over the life of the loan. Early in the loan term, a larger share of the payment goes toward interest, while later on, more is applied to principal. Understanding this principle is crucial for both real estate professionals and borrowers, as it affects how equity in a property builds over time.