Compounding and inflation

Notice the effect of compounding. The earlier years show a smaller increase in dollar terms (about $1,000 pa) and later on the increase becomes greater (about $1,300 pa).

In 5 more years, the annual increase would be greater again.

This is the effect of compounding.  

As an exercise, you may like to go back to your personal financial statement and project forward your living costs for, say, the next 5 years.

In the next example, two mortgages with the same balance and same interest rate have been compared.