How a Mortgage Amortization Schedule Works

A fixed-rate mortgage has the same payment every month, but the split inside that payment changes. An amortization schedule lists every payment and shows how much goes to interest and how much reduces the loan balance.

Why early payments are mostly interest

Each month the lender charges interest on the balance you still owe. At the start the balance is at its largest, so interest takes the biggest bite. Whatever is left of the payment after interest reduces the principal. As the balance falls, the interest charge falls too, and more of the same payment goes to principal.

A $300,000 example

Take a $300,000 loan at 6.5% for 30 years. The monthly rate is 6.5% ÷ 12 = 0.5417%. The principal-and-interest payment works out to about $1,896.20.

In month one, interest is $300,000 × 0.5417% = $1,625.00. That leaves $1,896.20 − $1,625.00 = $271.20 that reduces the balance. Over all 360 payments you would pay about $682,600 in total, which means about $382,600 of it is interest.

The formula behind the payment

The payment is P × r ÷ (1 − (1 + r)^−n), where P is the loan amount, r is the monthly interest rate and n is the number of monthly payments. The schedule then repeats a simple step: interest equals the balance times r, principal equals the payment minus that interest, and the new balance is the old balance minus principal.

What the schedule is good for

It shows how much equity you build in a given year, what you still owe if you sell or refinance, and what an extra payment does. Because extra principal lowers the balance that future interest is charged on, it can shorten the loan. Check with your lender that extra payments are applied to principal and that there is no prepayment penalty.

See your own schedule with our amortization calculator, and add taxes and insurance with the mortgage payment calculator. The payment above covers principal and interest only. Results are estimates, not financial advice.