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Amortization Guide
How Loan Amortization Works
Amortization means paying off a loan through fixed regular payments, where each payment covers that period's interest charge plus a portion of the principal. Early in the loan, most of each payment goes toward interest since the balance is still high; later payments shift toward paying down principal as the balance shrinks. The monthly payment formula is:
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 total number of monthly payments.
Why Interest Payments Decrease Over Time
| Payment Number | Typical Interest Portion | Typical Principal Portion |
|---|---|---|
| First payment | Highest | Lowest |
| Middle of term | Roughly equal | Roughly equal |
| Final payment | Lowest | Highest |
Frequently Asked Questions
Why does my mortgage payment stay the same but the interest/principal split change?
A fixed-rate amortizing loan has the same total payment every month, but as your balance decreases, less interest accrues on it each period — so a growing share of each fixed payment goes toward principal instead.
What happens if I make extra principal payments?
Extra payments applied directly to principal reduce your balance faster than scheduled, which reduces the interest charged on future payments and can significantly shorten the loan term and total interest paid. This calculator shows the standard schedule without extra payments.
Does this include property tax or insurance for a mortgage?
No — this shows only principal and interest (P&I). A real mortgage payment often also includes property tax and homeowners insurance held in escrow, which would make your actual payment higher than what's shown here.
Why is total interest so much higher on a 30-year loan than a 15-year loan?
A longer term spreads payments out, lowering the monthly amount, but interest keeps accruing on the outstanding balance for many more years — so total interest paid over the life of a 30-year loan is typically more than double that of the same amount over 15 years, even though the payment is much lower.