How mortgage amortization actually works
Every payment splits between interest and principal. Here's the math, why early payments are mostly interest, and how extra payments change the curve.
The formula
The monthly payment on a fixed-rate mortgage is:
P = L · [ r (1 + r)^n ] / [ (1 + r)^n − 1 ]
Where L is the loan amount, r is the monthly interest rate (annual rate ÷ 12), and n is the total number of monthly payments.
Why the first payments are mostly interest
Interest each month is charged on the remaining balance. On day one, the balance is the full loan, so the interest portion is at its maximum. Whatever's left of your fixed payment goes to principal. As the balance shrinks, the interest portion shrinks too, and more of each payment goes to principal.
What extra principal payments do
An extra payment reduces the balance immediately. Every future month's interest is now calculated on a smaller number, so you save interest for the entire remaining life of the loan — not just this month. That's why a single extra payment early in the loan can shave years off the term.
Try it
Use the Mortgage calculator to see your own amortization schedule, then add an extra payment and watch the payoff date move.