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How are mortgage payments decided? [duplicate]
It has nothing to do with forcing people to pay off their debt; in that case it would make better sense to have people pay off debt rather than interest. It is because you want to have your actual payment stay the same each month, which is easier for the vast majority of people to comprehend and put into their budget. It is called an annuity in Finance terms. In theory you could use another method - eg. pay of the same amount of debt each month - then your interest payments will decrease over time. But in that case your monthly payment (debt + interest) will not be stable - It will start of high and decrease a little bit each month. With an annuity you have a constant cashflow. In Finance you generally operate with three methods of debt repayment: Annuity: Fixed cashflow. High interest payment in the beginning with small debt payments - later it will be reversed. Serial loan: Fixed debt payments. Debt payments are equally spread out accross the period - interst is paid on the remaining debt. Cash flow will decrease over time, because interest payments become smaller for each period. Standing loan: You only pay interest on the loan, no debt payments during the period. All debt is payed back in the end of the loan. In Europe it is common practise to combine a 30 year annuity with a 10 year standing loan, so that you only pay interest on the loan for the first 10 years, thereafter you start paying back the debt and interest, the fixed amount each month (the annuity). This is especially common for first-time buyers, since they usually have smaller salaries early in life than later and therefore need the additional free cash in the beginning of their adult life.