The French Amortization System: How Your Mortgage Works

Note: This system is the standard for mortgages in Spain, France, and Portugal.

If you have a mortgage in Continental Europe, you are likely paying it off using the French Amortization System. This differs significantly from systems used in other parts of the world.

How it Works

The defining feature of the French System is the Constant Monthly Payment.

• You pay the exact same amount (e.g., €1,000) every month for the entire duration of the loan (assuming a fixed interest rate).

However, the composition of that €1,000 changes drastically over time.

The "Interest Trap"

1. Start of Loan: Your debt is high. Therefore, the interest generated is high.
   • Payment 1: €800 Interest / €200 Principal.
2. Middle of Loan: You have paid off some debt. Interest decreases.
   • Payment 180: €500 Interest / €500 Principal.
3. End of Loan: Debt is low. Interest is negligible.
   • Payment 360: €50 Interest / €950 Principal.

This structure means that banks collect their profit upfront. If you sell your house after 10 years of a 30-year mortgage, you will be surprised to see that you haven't paid off much of the actual debt, even though you've made 120 payments.

Strategy: Amortize Early

Because the system is front-loaded with interest, early prepayments (amortizations) are exponentially more valuable.

• Paying €5,000 extra in Year 1 saves you 29 years of interest on that amount.
• Paying €5,000 extra in Year 29 saves you almost nothing.

Rule of Thumb: Make aggressive extra payments in the first 1/3 of your loan term to destroy the interest curve.

👉 Simulate the French System Amortization Table