How Amortization Works
On a fixed-rate loan, your monthly payment stays the same from the first month to the last — but what that payment covers shifts dramatically over time. In the early years, the vast majority of each payment goes toward interest. In the later years, most of it reduces your balance.
This happens because interest is calculated each month on your current outstanding balance. A $300,000 loan at 7% generates roughly $1,750 in interest in month one. After 15 years of payments, the same loan has a much smaller balance, so the interest portion shrinks — and more goes to principal.
The Cost of Early Interest
On a 30-year $300,000 mortgage at 7%, you'll pay roughly $719,000 in total — meaning about $419,000 in interest on top of the original loan. This is why paying extra early is so powerful: every extra dollar applied to principal in year one eliminates interest charges on that dollar for the remaining 29 years.
On that loan, an extra $100 a month from the first payment pays it off about four years early and saves about $69,000 in interest. Use the Mortgage Extra Payment Calculator to model extra payments on your own loan.
Yearly vs. Monthly View
The yearly summary totals each 12 payments, counted from your first payment. It shows how the split between interest and principal shifts over the loan. If the loan starts mid-year, those rows won't match the calendar-year interest your lender reports on Form 1098. The monthly detail shows every individual payment.
Understanding the Payoff Chart
The chart shows two lines over the life of your loan:
- Remaining balance (maroon) — starts at your loan amount and curves down to zero.
- Cumulative interest (red) — starts at zero and climbs steadily. This line shows the total interest cost you've accumulated to date.
Where the two lines cross is roughly the point at which you've paid as much in interest as you have remaining in balance — a useful milestone for understanding your loan's cost.
Frequently Asked Questions
What is an amortization schedule?
An amortization schedule is a table showing every payment on a loan broken into principal (the amount reducing your balance) and interest (the cost of borrowing). Early payments are mostly interest; later payments are mostly principal. The schedule shows your exact balance after every payment until the loan is paid off.
Why do I pay so much interest at the beginning of my loan?
Each month's interest is calculated on the current outstanding balance. At the start of a loan, the balance is highest, so the interest portion of your payment is highest. As you pay down principal, the balance shrinks, so interest shrinks and more of each payment goes to principal. This is how amortization works.
How does making extra principal payments affect my loan?
Extra principal payments reduce your outstanding balance immediately, which reduces the interest charged in all future months. Even a small recurring extra payment can shave years off a 30-year mortgage and save tens of thousands in interest — every dollar paid early eliminates future interest on that dollar for the remaining life of the loan.
What is the difference between principal and interest?
Principal is the portion of your payment that reduces your loan balance — paying back what you borrowed. Interest is the fee charged by the lender for the use of their money. On a fixed-rate loan, the total monthly payment stays the same, but the split shifts over time: principal grows and interest shrinks as the balance decreases.
How is my monthly payment calculated?
Monthly payment is calculated using the amortization formula: M = P × [r(1+r)^n] / [(1+r)^n − 1], where P is the loan amount, r is the monthly interest rate (annual rate ÷ 12), and n is the number of payments. This ensures equal monthly payments that fully pay off the loan by the final payment.