How Amortization Works
With an amortizing loan, each payment is split between interest and principal. Early payments are mostly interest; later payments are mostly principal. This schedule shows exactly how each payment is divided.
M = P × [r(1+r)ⁿ] / [(1+r)ⁿ − 1]
Frequently Asked Questions
Why does so much go to interest early on? Interest is charged on the remaining balance. Since the balance is highest at the start, more of each early payment goes to interest.
How much does extra payment save? Even $100/month extra on a $250K mortgage at 6.5% saves over $65,000 in interest and pays off 5+ years early.