How Mortgage Amortization Works

Amortization is the process of paying off a loan with equal, fixed payments over time. Your mortgage payment stays the same each month, but the split between interest and principal shifts steadily — and understanding that shift explains why a 30-year loan costs so much in interest.

What each payment is made of

Every month, interest is charged on your remaining balance. The rest of your payment goes to principal. Because the balance is highest at the start, early payments are mostly interest; as the balance shrinks, more of each payment chips away at principal. This snowballs toward the end of the loan.

A worked example

Take a $280,000 loan at 6.5% over 30 years — a payment of about $1,770/month. In month one, interest is 280,000 × (0.065 ÷ 12) ≈ $1,517, so only about $253 reduces the principal. Years later, that ratio flips. See the full schedule for your own numbers in the mortgage calculator.

Why the total interest is so high

Stretching repayment over 30 years keeps the monthly cost low but means you owe the balance for a long time — and interest accrues the whole way. The same loan over 15 years has a higher monthly payment but can cut the total interest roughly in half.

How extra payments help

Any amount above your scheduled payment goes straight to principal. That lowers the balance every future month of interest is calculated on, so a small recurring extra payment can shorten the loan by years and save tens of thousands. The calculator's extra-payment option shows the exact savings.

• Higher rate → more of each early payment is interest.
• Longer term → lower payment, far more total interest.
• Extra principal → less interest and an earlier payoff.

Mortgage vs other loans

The same math drives car and personal loans — and "EMI", the term used in many countries, is just an amortized payment. Compare scenarios with the loan calculator or the EMI calculator, and see how interest compounding works in general with the compound interest calculator.