The Crossover Month: When Your Mortgage Payment Tips to Principal

Many homeowners notice that for the first several years of a mortgage the balance barely moves. A natural follow-up question is when that changes. For a fixed-rate loan with level payments, the answer is a specific month, the first one in which more of the payment reduces the balance than pays interest. This article calls it the crossover month, and it arrives earlier or later depending on the rate and the term.

Key takeaways

• On a fixed-rate mortgage, a crossover month arrives when the principal part of the payment first exceeds the interest part.
• In a hypothetical 30-year loan at 7 percent, that month arrives after about 20 years, and about 73 percent of the payments made before then go to interest.
• A lower rate brings the crossover sooner, and in the examples here a 3 percent loan crosses over after about 7 years while a 9 percent loan takes about 22.
• A shorter term brings the crossover much sooner, since a 15-year loan at 7 percent crosses over after about five years.
• A new loan starts a new schedule, so refinancing can push the crossover later even when the rate is lower.

Why a crossover exists

The Consumer Financial Protection Bureau defines amortization as paying off a loan with regular payments over time. Interest is charged on the balance still owed, so when the balance is high, interest takes a large share of a payment that stays the same each month. As the balance falls, the interest part shrinks and the principal part grows.

Eventually the two lines cross. Before that month, interest is the larger part. After it, principal is.

One loan, followed month by month

Consider a hypothetical $300,000 loan at 7 percent, fixed for 30 years. The monthly payment of principal and interest is about $1,996.

• Payment 1: about $1,750 goes to interest and $246 to principal.
• Payment 61, the start of year six: about $1,647 to interest and $349 to principal.
• Payment 121, the start of year eleven: about $1,502 to interest and $494 to principal.
• Payment 181, the start of year sixteen: about $1,295 to interest and $701 to principal.
• Payment 242, just over twenty years in: about $997 to interest and $999 to principal.

That last payment is the crossover month. By then, about $351,900 of interest and $129,100 of principal have been paid, so roughly 73 percent of everything paid so far went to interest. The balance is still about $170,900, which is around 57 percent of the original amount. Crossing over does not mean the loan is half repaid.

What moves the crossover

Two features of the loan do most of the work. These figures assume a fixed rate and level payments, and they are illustrations of the math, not quotes.

The rate. For a 30-year loan, the crossover arrives at roughly these points:

• At 3 percent, after about 7 years.
• At 5 percent, after about 16 years.
• At 7 percent, after about 20 years.
• At 9 percent, after about 22 years.

A lower rate means less interest competing with principal from the start. Notice, though, that at 3 percent the crossover arrives while about 84 percent of the loan is still owed, because the interest share was small to begin with.

The term. A shorter loan has a larger payment relative to the balance. At 7 percent, a 15-year loan crosses over after about five years instead of twenty.

The loan amount does not change the timing. A $150,000 loan and a $400,000 loan with the same rate and term cross over in the same month, because everything scales together.

A refinance can push the crossover back

A new loan starts a new schedule. Suppose the household above is ten years into its loan, with a balance of about $257,400. Under the existing loan, the crossover is about 122 payments away, or roughly ten years.

Now suppose it refinances that balance into a new 30-year loan at 6 percent. The rate is a full point lower, but the new schedule starts from the beginning. The crossover is now about 223 payments away, or roughly eighteen and a half years. That example ignores closing costs and says nothing about whether the refinance is worthwhile, since a lower payment and lower rate carry real benefits. It only shows that a lower rate and an earlier crossover are not the same thing.

Extra payments and the schedule

According to the CFPB, when a principal payment is made, you owe less and pay less interest. Extra money applied to principal therefore lowers the balance faster than the schedule expects, which shrinks future interest. The agency also notes that not all mortgages have a prepayment penalty, and it advises checking the loan terms before choosing a plan that pays early.

Questions to ask about your own loan

1. Which payment number is my loan's crossover month?
2. How much of my next payment is interest, and how much is principal?
3. How many years of payments remain after the crossover?
4. If I am considering a refinance, how does the new schedule compare with the one I have?
5. How would extra payments applied to principal change the schedule?

The crossover is not a finish line. It is a marker that shows how a loan's weight shifts over time, and it can help a household judge how a change in rate, term or payment fits its own timeline.

Common questions

When does more of my mortgage payment go to principal than interest?

It depends on the rate and the term. On a hypothetical 30-year fixed loan, the month arrives after about 7 years at 3 percent, about 16 years at 5 percent and about 20 years at 7 percent. Your loan's amortization schedule shows the exact month.

Does making extra payments change the crossover?

Extra payments applied to principal lower the balance, so less interest accrues afterward. The Consumer Financial Protection Bureau notes that when you make a principal payment you owe less and pay less interest, and that some loans carry a prepayment penalty.

Does refinancing reset the crossover?

A new loan has its own schedule, so early payments are again mostly interest. In the example here, refinancing a 7 percent loan ten years in to a new 30-year loan at 6 percent moved the crossover from about ten years away to about eighteen and a half.

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