Bubbsy, I think the key to understanding how a mortgage works (aside from the actual terms of the mortgage) is to know that you pay the most interest on the last dollar you repay. To figure out how much a rough way is to use the equation $ = 1.0X^Y where X is your interest rate, Y is your mortgage length and $ is the amount of interest you pay on the last dollar you pay back. ie. a 25 year mortgage at 5% would be $3.39 (another way to calculate this is to multiply 1.05 by itself 25 times). That means that the last dollar you pay pack cost you $3.39 in interest where as the first dollar you pay back will cost you roughly 4/10 of a penny in interest.
To over simplify things (instead of thinking of one $300000 loan think of it as 300000 $1 loans). The first dollar you pay back comes with the 4/10 of a penny interest charges and the last dollar paid back has $3.39 worth of interest charges. By making only your regular monthly payments you are paying back the cheapest loans first. Anything you pay above the scheduled amount goes on the back end pays off the most expensive loan first.
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