How Mortgage Amortization Works (With a Real Example)
Why early mortgage payments are mostly interest, how the payment is calculated, and how extra payments save years of interest, with a 300,000 example.
By Browser Tools Team · · 3 min read
Mortgage amortization means paying off a home loan with equal monthly payments, where each payment covers that month's interest first and the rest reduces the loan. Early on, most of the payment is interest; by the end, most of it is principal. On a 300,000 loan at 6.5% over 30 years, the payment is about 1,896 a month, and the first payment is 1,625 interest and only 271 principal. The Home Loan Calculator shows the whole schedule.
How is the monthly payment calculated?
The standard fixed-rate formula is:
Payment = P × r ÷ (1 − (1 + r)^−n)
- P = loan amount (home price minus down payment)
- r = monthly interest rate = yearly rate ÷ 12
- n = number of monthly payments = years × 12
For 300,000 at 6.5% over 30 years: r = 0.065 ÷ 12 ≈ 0.005417 and n = 360, giving a payment of 1,896.20.
What does an amortization schedule look like?
The first payments on that loan:
| Month | Payment | Interest | Principal | Balance |
|---|---|---|---|---|
| 1 | 1,896.20 | 1,625.00 | 271.20 | 299,728.80 |
| 2 | 1,896.20 | 1,623.53 | 272.67 | 299,456.12 |
Interest each month is the balance × r. Month 1: 300,000 × 0.065 ÷ 12 = 1,625. Whatever is left of the payment reduces the balance.
Over 30 years you pay about 682,633 in total, of which roughly 382,633 is interest: more than the loan itself. That's normal for long loans at these rates, and it's why the schedule is worth looking at.
How much do extra payments save?
Any money above the required payment goes straight to the principal. Add 200 a month to the same loan and:
- the loan is paid off in 277 months instead of 360, about 6 years and 11 months sooner,
- total interest falls to about 279,185, saving around 103,449.
Extra payments help most early in the loan, when the balance is highest. Check that your lender doesn't charge a prepayment penalty first.
How do you use the Home Loan Calculator?
- Open the Home Loan Calculator.
- Enter the home price and the down payment, as an amount or a percentage.
- Enter the interest rate and the loan term in years, and pick the month of your first payment.
- Optionally add monthly costs: property tax, insurance and HOA fees, to see your real monthly cost.
- Try an extra monthly payment to see the months and interest saved.
- Open the amortization schedule: each year expands to show its months, the chart shows principal against interest per year, and Download CSV saves it for Excel or Google Sheets.
Pick your currency from the list. Everything is calculated in your browser.
How do rate and term change the cost?
Using the same 300,000 loan:
- A shorter term (15 years) means a higher monthly payment but far less total interest.
- A lower rate cuts both the payment and the total interest; even 0.5% makes a big difference over 30 years.
- A bigger down payment lowers the loan, so everything else shrinks too.
Change one number at a time in the calculator to see the trade-offs.
What isn't included?
The calculator models a standard fixed-rate loan. Your real costs may also include:
- arrangement or origination fees and closing costs,
- variable or adjustable rates that change over time,
- mortgage insurance on small down payments,
- rounding differences in your lender's figures.
Use it to plan and compare, then confirm the exact numbers with your lender. This guide is not financial advice.
Mortgage, EMI and other loans
The same maths applies to car loans and personal loans; in South Asia the monthly payment is usually called the EMI. Our guide on how EMI is calculated covers it with rupee examples, and the EMI Calculator handles any loan. If you're saving for a down payment, compound interest shows how your savings can grow.
See your own schedule with the free Home Loan Calculator.
Frequently asked questions
What is an amortization schedule?
A table that shows every payment on a loan, how much of it goes to interest and how much to the loan itself (principal), and the balance left afterwards.
Why is most of my early payment interest?
Interest is charged on the balance you still owe. At the start the balance is highest, so the interest part is largest. As the balance falls, more of each payment goes to principal.
Do extra payments really help?
Yes. Extra money goes straight to the principal, so less interest builds up afterwards. On a 300,000 loan at 6.5% over 30 years, an extra 200 a month saves about 103,000 in interest and nearly 7 years.
Does the monthly payment include tax and insurance?
The loan payment itself is only principal and interest. Many lenders also collect property tax and insurance monthly, so add them to see your real monthly cost.
- #mortgage
- #home loan
- #amortization
- #money