How amortization works
An amortizing loan has a fixed payment, but the split changes every month. Interest is charged on the balance, so it is largest at the start; as the balance falls, more of each payment goes to principal.
Payment: M = P × r / (1 − (1 + r)^−n)
Each month: interest = balance × r (rounded to the cent)
principal = M − interest
balance = balance − principal
Balance after k: B_k = P(1 + r)^k − M((1 + r)^k − 1) / r
Worked example
$250,000 at 6.5% for 30 years:
| Monthly payment | $1,580.17 |
|---|---|
| Payment 1 | $1,354.17 interest + $226.00 principal |
| Payment 180 | $985.79 interest + $594.38 principal |
| Payment 360 | $8.52 interest + $1,572.03 principal |
| Balance after 10 years | $211,940 |
| Total interest | $318,862 |
After ten years of payments, less than a sixth of the loan has been repaid — which is why extra payments early in a loan are so effective.
Reading the schedule
Use the yearly view for planning (how much equity you will have when you might sell) and the monthly view to match your lender’s statement. Your servicer may differ by a few cents because of rounding conventions and the actual days in each month. Taxes, insurance and PMI are not part of amortization — see the mortgage calculator for the full payment.
Frequently asked questions
Why is so much of my payment interest?
Interest is charged on the outstanding balance, which is largest at the start. On a 30-year loan at 6.5%, principal does not overtake interest until payment 233, more than 19 years in.
Can I use this for car or personal loans?
Yes. Any fixed-rate loan with equal monthly payments amortizes the same way.