Mortgage Amortization Calculator
Amortization Insights
- ✓Early payments are mostly interest
- ✓Extra payments reduce principal directly
- ✓Shorter terms mean more principal per payment
- ✓Lower rates shift more toward principal
Understanding Mortgage Amortization
What is Amortization?
Amortization is the process of spreading out a loan into a series of fixed payments. Each payment covers both interest and principal, but the ratio changes over time. Early in the loan, most of your payment goes to interest; later, more goes to principal.
How Amortization Works
With each monthly payment:
- Interest is calculated on the remaining balance
- Your fixed payment is applied, first to interest, then to principal
- The principal portion reduces your balance
- Next month, interest is calculated on the new, lower balance
Example: $300,000 at 6.5% for 30 years
Month 1: $1,896 payment = $1,625 interest + $271 principal
Month 180 (Year 15): $1,896 payment = $1,095 interest + $801 principal
Month 360 (Final): $1,896 payment = $10 interest + $1,886 principal
The Amortization Formula
Where:
- M = Monthly payment
- P = Principal (loan amount)
- r = Monthly interest rate (annual rate / 12)
- n = Total number of payments
Why Early Payments Are Mostly Interest
Interest is calculated as a percentage of your remaining balance. At the start:
- Your balance is at its highest
- Therefore, monthly interest charges are highest
- The fixed payment minus high interest leaves little for principal
- As balance decreases, interest decreases, and more goes to principal
15-Year vs 30-Year Amortization
| $300,000 at 6.5% | 15-Year | 30-Year |
|---|---|---|
| Monthly Payment | $2,613 | $1,896 |
| Total Interest | $170,402 | $382,633 |
| Interest Savings | $212,231 | - |
| Year 5 Balance | $218,476 | $278,543 |
Using the Schedule to Your Advantage
Make Extra Payments Early
Extra payments in the first years have the biggest impact since they reduce principal that would have accrued decades of interest.
Biweekly Payments
Paying half your mortgage every two weeks results in 13 full payments per year instead of 12, shaving years off your loan.
Print Your Schedule
Many homeowners find it helpful to print their amortization schedule and track their progress. Crossing off each payment can be motivating, and you can see exactly where you stand at any point in your loan.
Frequently Asked Questions
What is mortgage amortization?
Amortization is the process of spreading a loan into equal periodic payments. Each payment covers both interest and principal, but the ratio changes over time. Early payments are mostly interest because you owe the most then. As you pay down the balance, more of each payment goes to principal.
Why do I pay so much interest at the beginning of my mortgage?
Interest is calculated as a percentage of your remaining balance. At the start, your balance is highest, so monthly interest is highest. With a fixed payment, high interest means little goes to principal. As you pay down the balance over years, interest decreases and more goes to principal. This is why early extra payments are so powerful.
How can I pay off my mortgage faster?
Make extra payments toward principal - even small amounts help significantly early in the loan. Try biweekly payments (26 half-payments = 13 full payments per year), round up payments to the nearest $100, apply bonuses and tax refunds to principal, or refinance to a shorter term if rates are favorable.
Should I get a 15-year or 30-year mortgage?
A 15-year mortgage has higher monthly payments but much lower total interest (often less than half). A 30-year mortgage has lower monthly payments but costs more overall. Choose 15 years if you can comfortably afford higher payments; choose 30 years for flexibility, but consider making extra payments when possible.