<prompt> Human: Im sure many of you are already well aware of all of this, but I keep seeing friends or random strangers on the Internet complaining that their bank is screwing them over by only applying a small amount of their mortgage payment toward their equity, and I figured Id correct that misconception.Your bank isnt screwing you this way, anyway, thats just how borrowing money works and there isnt really any other way to do it if were going to lock in your mortgage payment as a fixed amount every month for a fixed amount of time. Lets look at an example for simplicitys sake, we wont talk about housing prices moving or anything - Before you waste time reading everything I have below, you can just look at this chart which sums up the exact situation the right axis is for the outstanding balance of your loan, the left axis is for all of the monthly payments. Chart.You borrow 1,000,000 just because its a nice big round number, not because I expect you to buy a house worth that much at 4 annual interest for 30 years well exclude tax and insurance from our calculations, of course.You can check any number of online mortgage calculators ex. 1 or ex. 2 and see that your monthly payment will be about 4,774. Total Monthly Payment Monthly Interest Monthly Principal Repayment this second part is equity built Since our Total Monthly Payment is always exactly the same, for every 1 our Monthly Interest goes down, our monthly equity built must go up by 1 and vice versa.To reiterate, none of this has anything to do with bank policies, these are all just facts of how borrowing money with a fixed monthly repayment over a fixed timeframe works.When you initially took out your loan, your bank gave you 1,000,000 cash that you used to buy the house, and your amount owed to the bank was 1,000,000. The goal of your monthly payments is obviously to eventually reduce this amount owed from 1,000,000 alll the way to zero dollars which has the opposite effect of increasing your equity from zero all the way up to the full value of the house.How much interest do you owe? Well, your monthly interest owed is 4 divided by 12 times the amount you owe. In the beginning, this is 4 12 x 1,000,000 which equals 3,333 leaving about 1,441 to go toward equity. When you only owe 250,000 left so, 25 of the original amount on the house, the payment will be 833 which is 25 of the original interest, but because thats so much lower, that leaves about 3,941 to go toward equity, which is a much larger amount than the first month. The amount of your monthly payment that goes toward interest exactly tracks with the amount you owe which makes sense - the more you owe, the more interest you pay the person you borrowed it from, regardless of what type of loan were talking about.Whats the other effect of this? As I showed earlier, since your total payment is fixed, any 1 change in your interest owed will be reflected by a 1 change in the other direction in the amount of principal youre repaying. So, as your amount outstanding and thus your interest decreases, your equity built per month must increase from 1,441 in the first month all the way to your last payment being almost entirely equity.Edit: Fixed a typo or two.TL;DR - Your bank isnt screwing you by keeping your monthly equity built low in the beginning, its just how the math works. Your bank is just screwing you in every other transaction, probably. Also, heres the chart again.  <response>: Kahn Academy: Best explanation Ive seen or heard: 