How Amortization Works
Amortization is the process of spreading out a loan into a series of fixed payments. While your monthly payment remains the same, the percentage of that payment going toward interestversus principal shifts over time. In the early years of a mortgage, the majority of your payment covers interest.
The Amortization Formula
Our calculator uses the standard annuity formula to determine your fixed monthly payment (M):
Where:
- P: Principal loan amount
- r: Monthly interest rate (Annual rate / 12)
- n: Number of months (Years × 12)
Why a Schedule Matters
Reviewing an amortization table helps you identify the "tipping point"—the month when you finally start paying more toward your principal than your interest. This is crucial for homeowners considering refinancing or making extra payments to build equity faster.
Pro Tip: Early Extra Payments
Because interest is calculated based on your remaining balance, making even small extra payments toward your principal in the first 5 years of a loan can save you tens of thousands of dollars in interest over the life of the loan.