How Mortgage Amortization Works
Your mortgage payment stays the same every month, but the amount going to interest vs principal shifts dramatically over time. Understanding amortization is the key to seeing why early payments barely move the balance — and why extra payments are so powerful.
Quick answer
Early in a mortgage, most of your payment goes to interest. By the final years, most goes to principal. On a $300K loan at 6.5%, year 1's payment is ~80% interest; year 25's is ~80% principal.
The amortization formula
Each month, interest is calculated on your remaining balance: balance × (annual rate / 12). The rest of your fixed monthly payment goes to principal. Next month, interest is calculated on the slightly lower balance — so the principal portion grows ever-so-slightly each month.
Example: $300,000 loan at 6.5%, 30 years
Monthly P&I: $1,896. Look how the split shifts:
- Month 1: $1,625 interest, $271 principal
- Year 5 (month 60): $1,539 interest, $357 principal
- Year 10: $1,406 interest, $490 principal
- Year 15: $1,222 interest, $674 principal
- Year 20: $968 interest, $928 principal
- Year 25: $618 interest, $1,278 principal
- Year 30 (final months): mostly principal
Total interest paid over 30 years: ~$382,500 — more than the original loan amount.
Why early payments barely reduce the balance
After the first 5 years of a 30-year mortgage, you've typically paid down only about 8% of the loan, even though you've made 17% of all payments. This is why people who refinance or sell within 5–7 years often end up with little equity beyond their down payment.
The power of extra payments
Every dollar of extra principal directly reduces future interest charges. On the example loan above, an extra $200/month cuts the loan from 30 years to ~24 years and saves about $80,000 in interest.
Extra payments early are most valuable — they reduce the balance during the years when interest dominates.
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Open Mortgage CalculatorFrequently Asked Questions
Why is interest so high in the early years?
Because interest is calculated on the remaining balance, which is largest at the start. The balance has to come down before the interest portion does.
Should I get a 15-year mortgage to avoid this?
15-year mortgages amortize much faster and save huge interest, but the monthly payment is roughly 50% higher. Many borrowers prefer a 30-year with extra payments for flexibility.
Does an extra principal payment lower my monthly payment?
No — it shortens the loan but doesn't reduce the required monthly payment. You'd need a 'recast' (which most lenders allow after a large lump sum) for that.
What's an amortization schedule?
A month-by-month table showing the interest, principal, and balance for each payment over the loan's life. Most mortgage calculators (including ours) generate one.
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