How it works

Simple interest vs amortized

How amortization front-loads interest

An amortization schedule is built so that the payment stays level for the whole term. Early on the balance is large, so most of the payment is interest. As the balance falls, the split shifts.

On a thirty-year loan at a typical rate, the crossover — the month where principal finally exceeds interest — falls around month 233. That is nineteen and a half years in. For the first two-thirds of the loan, interest dominates.

One detail worth being accurate about: principal is being paid from month one. It is simply a small share of each payment. The common claim that “you pay only interest for the first decade” is not true.

What changes on a line of credit

There is no schedule. Interest is what it is for the days at that balance, and every dollar above the interest charge reduces the balance directly.

So the shape of the payoff changes. Instead of a slow curve that only steepens near the end, the balance falls in proportion to the surplus you apply to it.

What does not change

This is where a lot of marketing overstates the case. The calculation method is not, by itself, why the payoff is faster.

The payoff is faster because principal comes down earlier. That is also exactly what extra principal payments on a conventional mortgage do. The honest comparison is not “simple interest beats amortization” — it is what each structure lets you do with your surplus, and what it costs you in liquidity and rate risk.