Amortization is the sizing of a loan payment so the balance reaches exactly zero at the end of the term: every payment covers that month's interest first, and whatever remains retires principal. Because the balance falls each month, the interest inside the fixed payment falls with it and the principal share grows — the whole loan is that one repeating split. The Extra Mortgage Payment Calculator prints the full schedule for your loan; this guide explains the formula that sizes the payment and how to read the schedule it produces.
The payment formula
For a balance B, a monthly rate r (the annual rate divided by 12), and a term of n months, the amortizing payment is B × r × (1 + r)n ÷ ((1 + r)n − 1). It is not an approximation: at that payment, the simulation of interest accruing on the shrinking balance lands on zero in exactly n payments — a dollar less each month and a residue survives the term; a dollar more and the loan ends early. (At a 0% rate the formula's division collapses, and the payment is simply the balance divided by n.) Every month then runs the same three steps the Extra Mortgage Payment Calculator simulates: interest = current balance × r; principal = payment − interest; new balance = old balance − principal.
Worked example — $180,000 at 5.5% over 30 years
Omar borrows $180,000 at 5.5% on a 30-year term. The monthly rate is 5.5% ÷ 12 = 0.4583%, and the formula sizes the payment at $1,022.02 a month (the schedule runs on the unrounded figure). The first payment shows the split at its most lopsided:
- Month 1 interest: $180,000 × 5.5% ÷ 12 = $825.00 — about 81% of the payment
- Month 1 principal: $1,022.02 − $825.00 = $197.02, leaving a balance of $179,802.98
- Year 1 in total: $9,839.48 of interest and $2,424.76 of principal; balance after 12 payments: $177,575.24
Run the split to the end of the term and the totals are the ones that surprise first-time borrowers: 360 payments totalling $367,927.27, of which $187,927.27 is interest — more than the amount borrowed. The midpoint tells the same story in one figure: after 180 payments, exactly halfway through the term, the balance still stands at $125,081.50, because the early payments were mostly renting the money and only the later ones retire it at full speed. Nothing about that is a lender trick; it is the arithmetic of charging interest on what is currently owed, applied evenly for 360 months.
Try it with your own numbers
This mini-calculator is prefilled with the worked example above and derives the payment from the balance, rate, and term exactly as the full tool does. The full calculator adds extra monthly payments and a lump sum — and prints the complete amortization schedule, year by year with every month expandable.
Result
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| Total interest over the term | — |
| Total paid | — |
| Month 1 interest | — |
| Month 1 principal | — |
Open the full calculator — the Extra Mortgage Payment Calculator runs the complete version of this calculation.
Reading an amortization schedule
A schedule is the simulation written out: one row per month with the payment, its interest and principal split, and the balance that remains. Three habits make it readable. Watch the crossover — the month where the principal share first exceeds the interest share; on a long loan at a mid-single-digit rate it arrives years in, and every payment after it retires more than it rents. Read years, not months, for the shape — the yearly totals show the balance's slow start and fast finish far more clearly than 360 individual rows. Check the last row — the final payment is trimmed to exactly what is owed (balance plus its last month of interest), so it is usually a few dollars smaller than the standard payment, and a schedule whose last payment equals the standard one to the cent has usually been rounded somewhere upstream. The full calculator prints both views for any loan you enter: a year-by-year summary table, with the complete monthly schedule expandable beneath it.
Where amortization bends: extra payments and other loans
The schedule above assumes the payment never changes. Sending extra principal breaks the schedule in the borrower's favour — the balance falls faster, so every later month's interest is smaller, and the term shortens without the required payment changing. That is a calculation of its own, worked through in the guide on how extra mortgage payments work. The same machinery amortizes any installment loan, not just a mortgage: a car loan is the identical formula at a shorter term and usually a different rate, run by the Auto Loan Calculator with its own schedule. And the balance column of the schedule is an input to the household's bigger picture — the mortgage balance is typically the largest single liability in the net-worth figure the Net Worth Calculator totals, which is why its slow early decline is worth understanding rather than just observing.
For educational and planning purposes only — not professional financial advice. This guide explains standard amortization with a simplified example (a fixed rate for the whole term, one payment a month, no taxes, insurance, or other charges, which a real mortgage payment also collects). It is not professional financial advice. Verify your figures against your lender's amortization schedule and loan statements.