How loan amortization works

Amortization is the plan that pays a fixed-rate loan to zero. Each month the lender charges interest on the remaining balance, then the rest of your payment reduces principal. The payment amount stays the same. The split between interest and principal does not.

Why month 1 looks expensive

Interest is a percentage of what you still owe. At the start, you owe almost the full amount, so the interest piece is large. After years of payments the balance is smaller, so the same payment covers less interest and more principal. That is why a 30-year mortgage can cost more in interest than the house price even when every payment is on time.

The three numbers that set the payment

Amount borrowed, APR, and term in months. The standard formula finds one monthly payment that works for all three. Change any one of them and both the payment and the total interest change. A shorter term raises the monthly bill and usually cuts total interest because the balance falls faster.

What the schedule on this site shows

Open the loan payment calculator and scroll the amortization table. Each row is one month: payment, principal, interest, and remaining balance. The last row should be a zero balance if you make every scheduled payment and no extra principal. If you add extra principal on the calculator, the table shortens.

• Mortgages, auto loans, personal loans, and fixed-rate student loans use the same idea.
• Taxes, insurance, and PMI are not amortization. They are added to many mortgage bills separately. See PITI.
• Extra principal is optional. See what extra payments change.

This page is educational. It is not a lender quote and not advice about whether to borrow.