How Mortgage Amortization Works: the payment formula, the schedule and what extra payments do

A fixed-rate mortgage is repaid with equal monthly payments, but what each payment does changes every month. Interest is charged on the balance you still owe, so the early payments are mostly interest and the last ones are almost all principal. Take a $320,000 loan at 6.5% for 30 years. The payment is $2,022.62 for all 360 months. The first payment sends $1,733.33 to interest and $289.28 to principal, and principal does not become the larger share until payment 233, in year 20. Every figure in this guide was produced by our amortization schedule and mortgage calculator. The 6.5% rate is an example picked for the arithmetic, not a quote of today’s rates.

The payment formula

The monthly principal-and-interest payment on a fixed-rate loan comes from one formula:

M = P × r × (1 + r)^n ÷ ((1 + r)^n − 1)

P is the amount borrowed, r is the monthly interest rate (the yearly rate divided by 12) and n is the number of monthly payments. For the example, P is $320,000, r is 6.5% ÷ 12 = 0.541667% and n is 360. The result is $2,022.62.

The formula picks the one payment that brings the balance to exactly zero after the last month. The schedule itself is built with three steps, repeated each month:

1. Interest for the month = balance × monthly rate.
2. Principal repaid = payment − interest.
3. New balance = old balance − principal repaid.

In month 1 the interest is $320,000 × 6.5% ÷ 12 = $1,733.33. That leaves $289.28 of the payment for principal, so the balance falls to $319,710.72. In month 2 the interest is worked out on that slightly smaller balance and comes to $1,731.77, so $290.85 goes to principal. At first the interest shrinks by less than two dollars a month and the principal grows by the same amount. The shift speeds up as the balance falls. That slow handover is amortization.

The schedule, month by month

Here are ten rows from the 360-row schedule for the same loan, with the first payment due in November 2026.

Payment	Date	Interest	Principal	Balance after payment
1	Nov 2026	$1,733.33	$289.28	$319,710.72
2	Dec 2026	$1,731.77	$290.85	$319,419.86
12	Oct 2027	$1,715.62	$307.00	$316,423.28
60	Oct 2031	$1,624.75	$397.87	$299,555.13
120	Oct 2036	$1,472.43	$550.18	$271,283.60
180	Oct 2041	$1,261.81	$760.80	$232,189.25
233	Mar 2046	$1,009.60	$1,013.01	$185,375.32
240	Oct 2046	$970.56	$1,052.05	$178,128.90
300	Oct 2051	$567.82	$1,454.80	$103,373.32
360	Oct 2056	$10.90	$2,011.72	$0.00

Over the full term the loan costs $408,142.36 in interest, so the total of all payments is $728,142.36. A few points are worth reading off the table:

• In the first year, $20,694.69 goes to interest and only $3,576.72 to principal. In the last year it is $833.39 of interest and $23,438.03 of principal.
• After five years of payments the balance is still $299,555.13. You have repaid $20,444.87 of the $320,000.
• At the halfway point, payment 180, you still owe $232,189.25. That is about 73% of the loan, with half the time gone.
• Payment 233 is the first one where principal ($1,013.01) is larger than interest ($1,009.60).

None of this is a lender’s trick. The Consumer Financial Protection Bureau explains it the same way: at the start you owe more interest because the balance is high, and as you pay the principal down, more of each payment goes to principal. Any loan with level payments behaves like this. A mortgage shows it most clearly because the term is so long.

What extra principal payments do

Money you pay beyond the scheduled payment goes straight to principal. The balance drops, so every later month’s interest is smaller, and the loan ends early. The scheduled payment itself stays at $2,022.62. The table shows the same $320,000 loan with different extra payments, each starting from the first month.

Extra payment	Total interest	Interest saved	Last payment	Paid off sooner by
None	$408,142.36	—	Oct 2056	—
$100 every month	$346,443.89	$61,698.47	Dec 2052	3 years 10 months
$200 every month	$302,713.69	$105,428.67	Mar 2050	6 years 7 months
$500 every month	$222,589.92	$185,552.45	Oct 2044	12 years
$2,000 once a year, each December	$313,001.33	$95,141.03	Dec 2050	5 years 10 months
$10,000 once, with payment 12	$357,604.88	$50,537.48	May 2054	2 years 5 months
$10,000 once, with payment 180	$392,526.68	$15,615.68	Oct 2055	1 year

Timing matters as much as the amount. The same $10,000 saves $50,537.48 when it is paid at the end of year one and $15,615.68 when it is paid at the end of year fifteen. An early dollar of principal avoids interest for many more months.

Two checks before you start. First, read your loan documents for a prepayment penalty. The CFPB describes it as a fee some lenders charge if you pay off all or part of your mortgage early. Second, look at your next statement to confirm the extra money was applied to principal and not held for a future payment.

15 years or 30 years

A shorter term raises the payment and cuts the interest sharply, because the balance falls faster from the first month. This comparison keeps the rate at 6.5% for every term so that only the term changes.

Term	Monthly principal and interest	Total interest	Principal overtakes interest at
30 years	$2,022.62	$408,142.36	Payment 233
20 years	$2,385.83	$252,600.17	Payment 113
15 years	$2,787.54	$181,757.84	Payment 53

The 15-year loan costs $764.92 more each month and saves $226,384.52 in interest. In practice the gap is usually wider, because the CFPB notes that shorter terms typically come with lower interest rates. Use the rate each lender actually quotes you for each term.

There is a middle path. Paying an extra $764.93 a month on the 30-year loan clears it in 180 payments with $181,757.34 of interest, which matches the 15-year result. You keep the right to fall back to $2,022.62 in a hard month, and you give up the lower rate a 15-year loan would normally carry.

The rate matters in the same way. At 6% the 30-year payment is $1,918.56 and total interest is $370,682.20. At 7% the payment is $2,128.97 and total interest is $446,428.47.

APR versus interest rate

The payment formula uses the interest rate on the loan, sometimes called the note rate. The CFPB defines it as the cost you pay each year to borrow the money, as a percentage. The annual percentage rate, or APR, is a broader measure. It includes the interest rate plus points, mortgage broker fees and other charges you pay to get the loan, which is why the APR is usually higher than the interest rate.

So the two numbers answer different questions. The interest rate tells you the monthly payment and builds the schedule above. The APR helps you compare the overall cost of two offers of the same kind, for example two 30-year fixed loans with different fees. The CFPB warns against comparing the APR of a fixed-rate loan with the APR of an adjustable-rate loan, because an adjustable loan’s APR does not reflect the highest rate the loan could reach. Enter the interest rate, not the APR, in a payment calculator.

What the monthly payment leaves out

The $2,022.62 is principal and interest only. Lenders talk about PITI, which stands for principal, interest, taxes and insurance, the four basic parts of a mortgage payment.

• Property taxes and homeowners insurance. Many lenders collect these monthly into an escrow account and pay the bills for you. Both can change from year to year, so your total payment can change even though the principal-and-interest part of a fixed-rate loan never does.
• Private mortgage insurance (PMI). You may have to buy it on a conventional loan with less than 20% down. It protects the lender, not you, and it can be charged monthly, up front or both. On a loan for a single-family primary home you can ask the servicer to cancel it when the balance is scheduled to reach 80% of the home’s original value, and it must end automatically at 78% if you are current on payments. FHA and VA loans follow different rules.
• HOA dues, where they apply.

The amortization schedule tells you when those PMI dates arrive. On a $400,000 home with 10% down, the $360,000 loan at 6.5% is scheduled to reach 80% of the original value with payment 95 and 78% with payment 109, a little over nine years in.

We have not quoted tax, insurance or PMI costs because they depend on your county, your insurer, your credit score and your lender. The mortgage calculator has a field for each one. The amounts already filled in are placeholders, so replace them with your tax bill, your insurance quote and your lender’s PMI rate.

How to check this yourself

1. Open the amortization schedule and enter the Loan amount, Interest rate (per year) and Loan term from your loan documents.
2. Set the First payment date so the rows carry real dates.
3. Check the first row by hand: loan amount × rate ÷ 12 should equal the interest shown for payment 1.
4. Add an amount under Extra payment every month, Extra payment once a year or One-off extra payment and read the interest saved and the new last payment.
5. Download the month-by-month table as a CSV file and compare it with the schedule from your lender.

The tools cover fixed-rate loans with monthly payments. They do not model adjustable-rate, interest-only or balloon loans. Lenders round each payment to the cent while the calculator keeps full precision, so your final payment can differ by a few cents.

Related tools

• Amortization schedule: the full dated table for any fixed-rate loan, with extra payments.
• Mortgage calculator: the whole monthly payment with property tax, insurance, HOA dues and PMI, and the month PMI ends.
• Loan prepayment calculator: a quick answer to what an extra monthly payment saves on a loan you already have.
• Car loan calculator: the same amortization math on a shorter loan.
• US paycheck calculator: your take-home pay, to see what share a payment would take.
• Compound interest calculator: what the same extra dollars would grow to in savings, for comparison.

Definitions checked against the Consumer Financial Protection Bureau on October 13, 2026. This is general information, not financial advice. Ask your lender for a Loan Estimate before you decide on a loan.