Amortization spreads loan repayment across equal monthly payments that blend principal (reducing the balance) and interest (cost of borrowing). For a $200,000 mortgage at 7% for 30 years: monthly payment = $1,330.60. Month 1: interest = $200,000 × 7%/12 = $1,166.67; principal = $1,330.60 − $1,166.67 = $163.93. Month 2: interest = $199,836.07 × 7%/12 = $1,165.71; principal = $164.89. Each month, the principal portion grows slightly as the balance decreases.
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What Is an Amortization Schedule?
An amortization schedule is a complete table showing every payment on a loan, broken down into how much goes toward interest and how much reduces the principal balance. Each row represents one payment period — typically one month — and shows the payment amount, the interest charged, the principal paid, and the remaining loan balance after that payment.
The word "amortization" comes from the Latin "amortire," meaning to kill off or extinguish a debt gradually. An amortized loan is designed so that equal payments over the loan term completely pay off both the principal and all interest by the final payment. This is different from an interest-only loan, where payments cover only interest and the principal balance stays flat until a lump sum is due.
The amortization schedule reveals one of personal finance's most striking realities: in the early years of a long-term loan, the vast majority of each payment goes to interest. In the first year of a 30-year $200,000 mortgage at 7%, only about $2,017 of the $15,967 paid actually reduces the loan balance — the remaining $13,950 is pure interest cost. By year 25, this completely flips: most of each payment goes toward principal. Understanding this dynamic is essential for making smart decisions about extra payments, refinancing, and how long to hold a loan. The amortization table is the clearest way to see this shift over time.
The Amortization Formula
Monthly Payment Calculation:
M = P × [r(1+r)^n] / [(1+r)^n - 1]
Where:
P = Principal (loan amount)
r = Monthly interest rate = Annual rate / 12
n = Total number of payments (months)
Example — $300,000 at 6.5% for 30 years:
- r = 0.065/12 = 0.005417
- n = 360 months
- M = $300,000 × [0.005417 × (1.005417)³⁶⁰] / [(1.005417)³⁶⁰ − 1]
- M = $300,000 × [0.005417 × 6.848] / [6.848 − 1]
- M = $300,000 × [0.037098] / [5.848]
- M = $300,000 × 0.006321 = $1,896.20/month
Sample Amortization Table: $200,000 at 7% for 30 Years
Payment = $1,330.60/month
| Month | Payment | Interest | Principal | Balance | |-------|---------|---------|-----------|---------| | 1 | $1,330.60 | $1,166.67 | $163.93 | $199,836.07 | | 2 | $1,330.60 | $1,165.71 | $164.89 | $199,671.18 | | 12 | $1,330.60 | $1,156.77 | $173.83 | $197,909.45 | | 60 (yr 5) | $1,330.60 | $1,102.62 | $227.98 | $188,869.35 | | 120 (yr 10) | $1,330.60 | $1,024.47 | $306.13 | $175,474.46 | | 180 (yr 15) | $1,330.60 | $927.86 | $402.74 | $158,816.42 | | 240 (yr 20) | $1,330.60 | $808.25 | $522.35 | $138,249.35 | | 300 (yr 25) | $1,330.60 | $658.01 | $672.59 | $112,580.30 | | 360 (yr 30) | $1,331.27 | $7.75 | $1,323.52 | $0 |
Total paid: 360 × $1,330.60 = $478,916 (loan was $200,000 — $278,916 in interest)
The Impact of Extra Payments
Making one extra monthly payment per year on a 30-year mortgage shortens the payoff by approximately 4–5 years and saves tens of thousands in interest.
$200,000 at 7%, 30 years — extra payment scenarios:
| Scenario | Extra/Month | Payoff | Total Interest | Interest Saved | |---------|------------|--------|---------------|----------------| | Standard | $0 | 30 yrs | $278,916 | — | | +$100/mo | $100 | 26.1 yrs | $228,040 | $50,876 | | +$200/mo | $200 | 23.3 yrs | $195,420 | $83,496 | | +$500/mo | $500 | 17.8 yrs | $140,316 | $138,600 | | 1 extra pmt/yr | $111 | 25.8 yrs | $225,960 | $52,956 |
Extra payments are most effective early in the loan when they displace the most interest.
Frequently Asked Questions
Why does so much of my mortgage payment go to interest at first? Interest is calculated on the outstanding balance. In month 1 of a $200,000 loan at 7%, you owe $200,000 — so interest = $200,000 × 7%/12 = $1,167. As you pay down the principal, the balance decreases, so interest charges shrink each month. The payment stays the same (it was calculated to be constant), so more goes to principal each month. This is called "front-loading" — you pay the interest cost first, then principal. Over 30 years, the mix shifts from 88% interest / 12% principal to 0.6% interest / 99.4% principal.
Should I make biweekly mortgage payments instead of monthly? Biweekly payments (half your monthly payment every two weeks) result in 26 half-payments = 13 full monthly payments per year instead of 12. This effectively makes one extra payment per year. On a $300,000 30-year mortgage at 6.5%: biweekly payments save approximately $58,000 in interest and pay off the loan in about 26 years instead of 30. Many mortgage servicers charge a fee to set up biweekly autopay — instead, simply add 1/12 of your monthly payment to each monthly payment as extra principal.
What happens if I pay extra on my mortgage — does it reduce my payment or term? For most standard mortgages, extra payments reduce the loan balance (and therefore future interest charges), effectively shortening the term — but the required monthly payment stays the same. You'll pay off the loan earlier. Some mortgages allow "recast" (recalculation of the required payment based on the lower balance) for a fee, which reduces monthly payment instead. Making extra payments does not automatically reduce your required monthly payment — contact your servicer to confirm how extra payments are applied.
How is mortgage amortization different from car loan amortization? Both use the same formula — the difference is scale and term. Car loans are typically 3–7 years; mortgages 15–30 years. The short car loan term means front-loading is less dramatic — half the principal is paid off in roughly half the loan term. A mortgage's 30-year term means the crossover point (where each payment's principal portion exceeds interest) occurs around year 18–20. For car loans, the crossover typically occurs around year 1.5–2.
Can I calculate amortization in Excel or Google Sheets?
Yes. Set up columns: Month, Payment (constant), Interest (prior balance × monthly rate), Principal (payment − interest), Balance (prior balance − principal). Payment formula: =PMT(annual_rate/12, term_months, -loan_amount). Interest formula: =prior_balance * (annual_rate/12). Populate down for all months. Excel's PMT function handles all the heavy lifting; the amortization table builds row by row. The RoughTools calculator generates the full table automatically and allows downloading as CSV.
Related Free Tools on RoughTools
- Mortgage Calculator — calculate monthly payment from home price, rate, and term
- Loan Payment Calculator — general loan payment calculator
- Interest Rate Calculator — calculate simple vs. compound interest
Generate Your Amortization Schedule Now
The free Amortization Schedule Calculator at RoughTools generates a full month-by-month amortization table for any loan, shows the effect of extra payments on payoff date and total interest, and allows CSV download. No account needed, completely free.