Understanding Mortgage Amortization in Plain English

Understanding Mortgage Amortization in Plain English

Make a mortgage payment in year one and most of it goes to interest; only a sliver reduces what you owe. That catches a lot of new homeowners off guard. The reason is amortization.

How each payment splits

A fixed mortgage payment is sized so the loan is gone by the end of the term. Early on, the balance is large, so the interest charged each month is large too. Your payment covers that interest first; whatever is left chips away at principal. As the balance falls, the interest slice shrinks and the principal slice grows.

A concrete example

On a $250,000 loan at 6% over 30 years, the payment is about $1,499. In month one, roughly $1,250 is interest and only about $249 touches the balance. By year 15 the principal share has grown substantially, and the final payments are almost all principal.

Why this matters for your wallet

Amortization is why extra payments pay off so well. An extra $100 a month in the early years can shave years off the loan and save thousands in interest, because you're cutting the balance that future interest is calculated on.

See it on your own loan with the amortization schedule generator, which lays out every month or year and exports to a spreadsheet so you can model extra payments.