Understanding Amortization

Amortization is the process of paying off a debt over time through regular payments. This guide explains how our calculator generates the amortization schedule.

The Breakdown: Principal vs. Interest

Every monthly mortgage payment is split into two main parts:

• Interest: The cost of borrowing money. In the early years of a loan, this makes up the majority of your payment.
• Principal: The portion that actually pays down your loan balance. This amount starts small but increases with every payment.

How the Schedule Changes

Our calculator's "Amortization Schedule" chart visualizes this shift. Over a 30-year term:

• Years 1-10: Payments are mostly interest. The loan balance decreases very slowly.
• Years 11-20: The split becomes more even as the principal balance drops.
• Years 21-30: Payments are mostly principal, and the loan balance drops rapidly to zero.

Impact of Extra Payments

Using the "Extra Payment" field in our calculator shows how applying additional money directly to the principal can significantly shorten the loan term and reduce the total interest paid.