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I bought my first house last year, which meant getting a mortgage of around $225,000. Given the amount of research I’ve done on the subject, I thought I had a pretty good idea of how it all would work.

Despite this research, however, I was still flabbergasted when I discovered how little of my monthly payments were going toward my actual principal — and how much was going everywhere else.

10% of payments went to principal, 65% to interest fees

Over the first 12 months of my mortgage, I paid a total of about $23,000 to the bank. Of that, a little over 10%, or about $2,400, went to paying down my principal. In other words, after a year of making payments, I only paid off 1% of my original principal balance.

So, where did the other $20,000-plus of my money actually go? Well, a whopping $15,100 of it went to paying interest fees. (For those playing the home game, that’s about 65% of my total payments.)

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About a quarter went to the escrow account

While interest fees definitely eat up the bulk of my payment, the amount that goes into escrow is no small portion, either. Indeed, it’s around 24%, which worked out to be a little over $5,500 for the year.

The escrow account is where my bank keeps the money that goes toward paying bills like property taxes and homeowners insurance. This amount will usually be the same each month, though it may go up or down if there is a major change in the cost of your taxes or insurance (mine went down slightly after the first six months).

Having an escrow account was a requirement of my mortgage, and I’m honestly content to let the bank deal with those bills. However, if you’re not paying into escrow, make sure you’re saving every month for your insurance and tax payments — and consider opening a high-yield savings account to keep it in so it can grow.

Extra payments pay down your principal faster

If you’re frustrated by your principal decreasing at a snail’s pace, the best solution is to make multiple mortgage payments whenever you can.

The way most mortgages work is that your payment goes to escrow and interest first, then the rest to your principal. Any additional payments you make during that same statement period will go entirely toward your principal.

Your interest is based on your principal, so as your principal goes down, your interest fees will decrease, too. This means more of your monthly payment will go toward your principal, paying it down even faster!

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