Monthly payment
How mortgage amortization works
Mortgage amortization is the process of paying off a loan through fixed regular payments over a set period. Even though your monthly payment stays the same throughout the loan, what's inside that payment changes dramatically over time. In the first year of a 30-year mortgage, the overwhelming majority of each payment goes toward interest — sometimes as much as 90%. By the final year, almost your entire payment reduces your principal balance.
This happens because interest is calculated on the outstanding balance. In month one, your balance is at its peak — so the interest charge is at its peak. As you slowly reduce the balance by paying principal, the interest portion of each subsequent payment shrinks slightly, freeing up more of your fixed payment to pay down principal. This creates a snowball effect that accelerates dramatically in the back half of the loan.
The formula behind the calculation is: M = P × [r(1+r)ⁿ] ÷ [(1+r)ⁿ − 1], where P is the principal, r is the monthly interest rate (annual rate ÷ 12), and n is the total number of payments. This produces the fixed monthly payment that satisfies both the interest and principal components exactly over the full term.
Extra payments are the single most powerful tool available to a mortgage holder. Because every extra dollar you pay goes directly to principal — bypassing interest entirely — it has a compounding effect on all future interest charges. An extra $200 per month on a $300,000, 7%, 30-year mortgage saves approximately $63,000 in interest and cuts 5 years off the loan. This calculator shows you that impact in real numbers.