I am trying to understand why banks charge for the clearance of loans or mortgages? Is it because they would benefit more in the longer term against interest payments on those loans or mortgages? I've always believed and been told that the first N years you will spend paying off interest on a loan or mortgage, but don't understand why a bank would charge for clearance of a loan in that circumstance if you plan to pay remaining arrears and have paid interest due. So is the correct way to view this - that any monies payed against loans or mortgages contributes to loan/mortgage + interest, but that after N years you've paid the equivalent total of your interest over the term of the loan/mortgage, but that interest continues to accrue on the account and when you plan to clear off loans early, it is the remaining interest you are paying for...?