Amortization Schedule: How Mortgage Payments Are Split Between Principal and Interest
A $400K 30-year mortgage at 7%: year 1, $31,800 of your $31,920 goes to interest (99.6%). By year 15, still 70% goes to interest. By year 29, only 5% goes to interest. Total interest over 30 years: $558,000. One extra payment per year cuts 5 years and $100K in interest.
Amortization is the process of spreading a loan into a series of fixed payments over time. An amortization schedule shows each payment broken down into principal and interest components. In the early years, the vast majority of each payment goes toward interest. Over time, the principal portion grows and the interest portion shrinks — a process called negative amortization reversal. Understanding your amortization schedule helps you make informed decisions about extra payments, refinancing, and loan term selection. Learn more about mortgage basics →
Real-world example: $400,000 loan at 7% for 30 years. Monthly payment: $2,661. Year 1: $31,920 total payments, $31,800 interest, $120 principal paid. After 1 year, you owe $399,880. Year 15: $31,920 total payments, $22,344 interest, $9,576 principal paid. Balance: $267,000. Year 29: $31,920 total payments, $5,016 interest, $26,904 principal paid. Balance: $24,600. The last year: almost entirely principal. If you make one extra payment of $2,661 each year, you pay off the loan in 25 years and save over $100,000 in interest. Compare how points change your amortization →
How Amortization Works
Each monthly payment on a fixed-rate mortgage is the same amount. The payment is calculated using the loan amount, interest rate, and term. The interest portion is calculated by multiplying the current loan balance by the monthly interest rate. For a $400,000 loan at 7%, the monthly rate is 0.5833% (7% / 12). Month 1 interest: $400,000 x 0.5833% = $2,333. The remaining $328 of the $2,661 payment goes to principal. Next month, the balance is $399,672, so interest is $2,331 — $2 less. Each month, the interest decreases slightly and the principal increases slightly. This gradual shift continues for 360 months until the loan is paid in full. How LTV changes as amortization reduces your balance →
The Amortization Curve
The amortization curve is not linear — it is exponential. In the first half of the loan term, you pay mostly interest and build equity slowly. In the second half, the principal paydown accelerates dramatically. For a 30-year mortgage at 7%, you reach the halfway point of principal paid ($200,000) at year 20, not year 15. It takes 20 years to pay off the first 50% of principal, then only 10 years to pay off the remaining 50%. This exponential curve means homeowners who move frequently (every 5-7 years) build very little equity through regular payments alone. Most equity in the early years comes from home price appreciation, not amortization. Understanding this curve helps you decide whether a 15-year mortgage, extra payments, or a shorter-term loan makes sense for your situation.
Reading an Amortization Table
An amortization table lists every payment across the full loan term with four columns: payment number, principal portion, interest portion, and remaining balance. A typical 30-year mortgage has 360 rows. Key rows to examine: payment 1 shows the maximum interest and minimum principal. Payment 180 (year 15) shows the crossover point where principal starts to exceed interest at higher rates. Payment 360 shows the final payment with nearly all principal. You can find the total interest paid by adding all interest portions — or simply subtract the loan amount from total payments (360 x monthly payment - loan amount). Many lenders provide amortization schedules at closing, and calculators are available online for any loan scenario. How PMI affects your effective payment breakdown →
Extra Payments and Interest Savings
Extra principal payments save the interest that would have accrued on that principal for the remaining loan term. An extra $100/month on a $400,000 7% loan saves $49,000 in interest and shortens the loan by 4 years. One extra full payment per year ($2,661) saves $100,000+ and shortens the loan by 5+ years. Even small extra payments have significant impact because they reduce the balance that future interest is calculated on. The earlier you make extra payments, the more interest you save — the same $100 extra payment in year 1 saves more than $100 extra in year 20 because the money has more time to compound. Always specify that extra payments should be applied to principal, not to next month's payment. Most lenders allow extra payments without penalty, but check your loan documents for prepayment penalties, which are rare on conventional mortgages but may exist on some subprime or non-qualified mortgages.
Why are early mortgage payments almost all interest?
The interest for each payment is calculated on the current loan balance. Early in the loan, the balance is at its highest, so the interest charge is at its highest. As the balance declines, the interest charge declines. The payment amount stays the same, so the principal portion grows. This is standard amortization for all fixed-rate loans. A 15-year mortgage has a similar pattern but with a much steeper curve — the first payment on a 15-year $400,000 loan at 6% has about 65% interest compared to 99.6% for the 30-year at 7%, because the payment is significantly higher.
How much can I save by paying extra each month?
Every $100 extra per month on a $400,000 7% loan saves approximately $49,000 in interest and cuts 4 years off the loan term. Adding $200/month saves roughly $80,000 and cuts 7 years. The exact savings depend on your rate and remaining term. Use an amortization calculator with extra payment functionality to see the precise numbers for your loan. The key insight: extra payments made early in the loan save far more than extra payments made later because the compounding effect is stronger with more time remaining.
What is the difference between amortization for 15-year and 30-year loans?
A 15-year mortgage has a significantly higher monthly payment but far less total interest. On a $400,000 loan at 6%, the 15-year payment is $3,375 versus $2,398 for the 30-year at 6.5%. The 15-year loan reaches 50% principal paid at year 8 instead of year 20. Total interest on the 15-year is approximately $207,000 versus $463,000 for the 30-year. The 15-year amortization curve is much steeper — you build equity far faster. The trade-off is the higher monthly payment, which can strain your budget and limit cash flow for other investments.
Can I change my amortization schedule after closing?
Yes, by making extra principal payments. You can do this at any time without changing your loan terms. Some lenders require you to specify that the extra amount should be applied to principal. You can make one-time lump sum payments or set up recurring extra payments. Refinancing to a new loan also resets your amortization schedule — if you refinance at year 10 of a 30-year loan, you start a new 30-year amortization schedule, which may extend your total time paying interest. Consider a 15-year refinance if you want to accelerate equity building without the year-by-year discipline of extra payments.