Key takeaways
- A fixed-rate mortgage has a level payment, but the split between interest and principal changes every month.
- Interest is charged on the balance you still owe, so early payments are mostly interest. On a $300,000, 6.5% 30-year loan, the first payment is $1,625.00 interest and only $271.20 principal.
- Principal overtakes interest only at payment 233, about 19 years and 5 months in, and you’ve paid off half the loan only after 21 years and 5 months.
- Any extra principal you pay early skips all the interest it would have accrued, which is why small prepayments save so much.
“Amortization” just means paying off a debt in regular installments. What surprises most homeowners is how slowly the balance falls at first. After years of payments, many people check their statement and find they’ve barely dented what they owe. That isn’t a trick. It’s how the math works.
The formula behind a level payment
Your lender sets a single monthly payment that, if you pay it every month, will bring the balance to exactly zero at the end of the term. For a loan of P at a monthly rate r (the annual rate ÷ 12) over n months:
Payment = P × r ÷ (1 − (1 + r)−n)
For $300,000 at 6.5% for 30 years (360 payments), that’s $1,896.20 a month in principal and interest. Property taxes, homeowners insurance, and PMI come on top if you pay them through escrow.
Where each payment goes
Every month, the lender does two steps:
- Charge interest on the current balance: balance × annual rate ÷ 12.
- Apply the rest to principal: payment − interest. The balance drops by that amount.
For the first payment: $300,000 × 6.5% ÷ 12 = $1,625.00 of interest. That leaves $1,896.20 − $1,625.00 = $271.20 for principal, so the new balance is $299,728.80.
Next month, interest is charged on that slightly lower balance, so a few dollars more go to principal. That shift repeats every month for 30 years.
The schedule, year by year
| Year | Paid in interest | Paid in principal | Balance at year end |
|---|---|---|---|
| 1 | $19,401 | $3,353 | $296,647 |
| 5 | $18,409 | $4,346 | $280,833 |
| 10 | $16,745 | $6,009 | $254,328 |
| 15 | $14,445 | $8,310 | $217,677 |
| 20 | $11,263 | $11,491 | $166,996 |
| 25 | $6,864 | $15,890 | $96,912 |
| 30 | $781 | $21,973 | $0 |
Some milestones from this schedule:
- First 10 years: you pay $181,873 in interest and only $45,672 in principal.
- Crossover: principal first exceeds interest at payment 233, about 19 years and 5 months in.
- Halfway: the balance falls below $150,000 only after 257 payments (21 years and 5 months), well past the halfway point of the term.
- Lifetime: total interest is $382,633, more than the $300,000 you borrowed.
- Final payment: just $10.22 of interest.
Most people don’t keep a mortgage for 30 years. If you sell or refinance after 5 or 7 years, you’ve paid mostly interest and built little equity from payments. Most of your equity will come from your down payment and any rise in the home’s value. Refinancing also restarts the schedule, so you go back to mostly interest.
How extra payments bend the curve
Because interest is charged on the remaining balance, any extra principal you pay today stops generating interest for the rest of the loan. Adding just $100 a month to this loan:
- Cuts total interest from $382,633 to $321,639, saving $60,995.
- Pays the loan off in 26 years instead of 30 years.
Extra payments do the most good early, when the balance and the interest on it are largest. Make sure your servicer applies them to principal, not to next month’s payment. For a deeper look, see extra mortgage payments: how much they really save.
Rate and term change the shape
- A higher rate means more of each early payment goes to interest and the crossover comes later.
- A shorter term (like 15 years) has a higher payment, but more of it goes to principal from day one, so equity builds much faster. See how loan term length changes your total interest.
- Adjustable-rate mortgages recalculate the payment when the rate resets, so the schedule is rebuilt from the new rate and remaining balance.
To see your own loan’s schedule, including any extra payments you’re considering, use the amortization calculator. To include taxes, insurance, and PMI, use the mortgage calculator.