Which aspect of a fully amortizing loan contributes to slower equity growth in the early years?

In a fully amortizing loan, the structure of the payment schedule is such that a significant portion of the initial payments is allocated to interest rather than principal. This means that in the early years, homeowners are paying primarily interest on the loan, with only a small amount going toward reducing the principal balance. As a result, the growth of equity—essentially the difference between the market value of the home and the outstanding loan balance—suffers during this time because equity is built only as the principal balance is paid down.

Over time, as the principal is gradually reduced, a larger share of each payment begins to go towards the principal rather than interest. This shift means that equity growth will accelerate in the later years of the loan. Thus, the initial phase of this loan structure is characterized by slower equity growth due to the larger portion of the payments being allocated to interest during the early stages.