Principal Paydown Estimate
With 30 year fixed rate, amortized loans that we use in our analysis, the amount you owe to the lender goes down over time as you make monthly payments.
It is designed so that if you make your agreed upon payments on-time, the loan will pay off completely in 30 years.
The loan is designed so that you end up paying off more each year as the loan ages. That is to say that you pay off more in year 10 than you do in year 1.
The analysis we do is to estimate the amount of the loan that you actually pay off, if you make the agreed upon payments, on the loan in the first year. Like I mentioned above, in year two, you will pay off more than in year 1 and more each year thereafter. So, the returns you will see from paying down the principal balance go up each year even if you are making the same payment.
Furthermore, if you pay more than the agreed upon payments and apply the payment to reducing the principal amount, you will have paid off more (effectively speeding up the loan).