How amortization works
An amortized loan is repaid with a level payment every period. Each payment first covers the interest that accrued on the outstanding balance since the last payment; whatever is left reduces the balance. Because the balance shrinks, the interest portion falls every month and the principal portion rises, even though the total payment never changes.
The schedule below is the first year of a $200,000 loan over 15 years at 6%. The payment is the same every month; watch how interest falls and principal climbs as the balance comes down.
| Payment | Interest | Principal | Balance after |
|---|---|---|---|
| 1 | $1,000.00 | $687.71 | $199,312 |
| 2 | $996.56 | $691.15 | $198,621 |
| 3 | $993.11 | $694.61 | $197,927 |
| 4 | $989.63 | $698.08 | $197,228 |
| 5 | $986.14 | $701.57 | $196,527 |
| 6 | $982.63 | $705.08 | $195,822 |
| 7 | $979.11 | $708.60 | $195,113 |
| 8 | $975.57 | $712.15 | $194,401 |
| 9 | $972.01 | $715.71 | $193,685 |
| 10 | $968.43 | $719.29 | $192,966 |
| 11 | $964.83 | $722.88 | $192,243 |
| 12 | $961.22 | $726.50 | $191,517 |
Why the early payments are mostly interest
Interest is charged on what you still owe, and at the start you owe everything. On a 30-year loan the first payment can be three-quarters interest; only after about two-thirds of the term does the split cross to mostly principal. This is why paying extra early in a loan saves so much more than paying extra late: every dollar of principal retired in year one stops accruing interest for the remaining twenty-nine years.
| Point in loan | Interest | Principal | Interest share | Balance |
|---|---|---|---|---|
| Year 1 | $1,000.00 | $199.10 | 83% | $199,801 |
| Year 5 | $946.15 | $252.96 | 79% | $188,976 |
| Year 10 | $857.90 | $341.20 | 72% | $171,239 |
| Year 15 | $738.87 | $460.23 | 62% | $147,315 |
| Year 20 | $578.32 | $620.78 | 48% | $115,044 |
| Year 25 | $361.77 | $837.34 | 30% | $71,516 |
| Year 30 | $69.66 | $1,129.44 | 6% | $12,803 |
How the term changes the payment and the cost
A shorter term raises the monthly payment but cuts total interest sharply, because the balance is retired faster and spends less time accruing. Between 15 and 30 years the payment rises by about 40% while total interest falls by more than half.
| Term | Monthly payment | Total interest | Total paid |
|---|---|---|---|
| 5 years | $3,866.56 | $31,994 | $231,994 |
| 10 years | $2,220.41 | $66,449 | $266,449 |
| 15 years | $1,687.71 | $103,788 | $303,788 |
| 20 years | $1,432.86 | $143,887 | $343,887 |
| 25 years | $1,288.60 | $186,581 | $386,581 |
| 30 years | $1,199.10 | $231,676 | $431,676 |
Extra payments and early payoff
Any amount paid above the required payment goes straight to principal (confirm with your lender that it is applied that way, not held as a prepayment of next month). The calculator accepts a fixed extra every month, an extra once a year in a month you choose, and a one-time lump sum in a chosen loan year. The table shows what a monthly extra does to a 30-year loan.
| Extra each month | Paid off in | Total interest | Interest saved |
|---|---|---|---|
| None | 30 yr 0 mo | $231,676 | $0 |
| $100 | 24 yr 7 mo | $182,538 | $49,138 |
| $200 | 21 yr 0 mo | $151,876 | $79,801 |
| $300 | 18 yr 5 mo | $130,571 | $101,106 |
| $500 | 14 yr 11 mo | $102,535 | $129,142 |
| $1,000 | 10 yr 2 mo | $67,408 | $164,268 |
Reading the schedule
Every row is one payment. Interest is the balance at the start of the month times the monthly rate (the annual rate divided by twelve). Principal is the payment minus that interest. The balance column is what remains afterwards. Year-end rows total the interest and principal for that year, which is the figure you need for tax records where mortgage interest is deductible.
The final payment is often slightly different from the others: rounding accumulates over hundreds of payments, and the last one simply clears whatever balance remains.
- Interest for the month = balance × (annual rate ÷ 12).
- Principal for the month = payment − interest.
- New balance = old balance − principal.
- Total interest = sum of every row's interest, which also equals total payments minus the amount borrowed.
Loans that are not amortized
Not every loan works this way. Interest-only loans charge only the interest for a period, so the balance does not fall at all. Balloon loans amortize as if over a long term but come due early, leaving a large final payment. Credit cards have a minimum payment that shrinks with the balance, so paying only the minimum stretches repayment over decades. Deferred loans accrue interest that is added to the balance and settled at maturity. The loan calculator covers the deferred and lump-sum cases; this page is for the level-payment loan most people mean by amortization.