Understanding Amortization Schedules: Where Your Loan Payments Go

September 5, 2026 · 5 min read

When you make a $1,500 monthly mortgage payment, you might assume most of it goes toward paying off your house. In reality, during the early years, over 70% of each payment goes to interest. Understanding how amortization works reveals why early extra payments have such a dramatic impact on total interest paid.

How Amortization Works

Amortization spreads a loan into equal monthly payments over a fixed term. Each payment covers interest on the current balance plus a portion of principal. Early in the loan, the balance is high, so interest takes a larger share. As the balance decreases, more of each payment goes to principal. The total payment stays the same, but the split between interest and principal shifts over time.

An Example

A $300,000 mortgage at 6.5% for 30 years has a monthly payment of $1,896. In month one, $1,625 goes to interest and only $271 goes to principal. In month 180 (year 15), $1,059 goes to interest and $837 goes to principal. In the final year, nearly all of each payment goes to principal. Total interest paid over 30 years: $382,633 — more than the original loan.

The Power of Extra Payments

Adding just $200/month extra to that $300,000 mortgage saves approximately $85,000 in interest and pays off the loan 6 years early. One extra payment per year (a 13th payment) saves about $65,000 and cuts 4.5 years off the term. Early extra payments have more impact because they reduce the principal that future interest is calculated on.

Strategies for Paying Less Interest

Make biweekly payments (26 half-payments per year equals 13 full payments). Round up payments to the next hundred. Apply windfall money (tax refunds, bonuses) to principal. Refinance to a shorter term if rates are favorable. Every dollar of extra principal payment saves roughly $2 in future interest on a 30-year mortgage.

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