Understanding Amortisation: Where Your Mortgage Payment Goes
Every month you write a mortgage check for the same amount, but the split between principal and interest changes quietly in the background. In the early years, most of your payment goes to interest. By the final years, almost all of it goes to principal. This invisible shift is called amortisation, and understanding it can save you tens of thousands of dollars.
This guide explains the mechanics in plain English, walks through a real amortisation table, and shows how extra payments accelerate the tipping point.
✨Key takeaways
- Amortisation = splitting a fixed payment into a shrinking interest portion and a growing principal portion.
- On a 30-year mortgage at 6.5%, the first payment is ~85% interest and ~15% principal.
- One extra payment per year can shave 4–7 years off the loan term.
- The [Mortgage Calculator](/calculators/mortgage) shows your full amortisation schedule payment by payment.
How the monthly payment is calculated
The standard formula is M = P[r(1+r)^n] / [(1+r)^n – 1], where M is the monthly payment, P is the principal, r is the monthly interest rate, and n is the total number of payments.
Example: $300,000 loan at 6.5% for 30 years. r = 0.065/12 = 0.005417. n = 360. M = 300,000 × [0.005417 × (1.005417)^360] / [(1.005417)^360 – 1] ≈ $1,896/month.
That $1,896 stays the same for 360 months, but the principal/interest split changes every single month.
Why early payments are mostly interest
Each month, interest is calculated on the remaining balance. In month 1, the balance is $300,000. Monthly interest = $300,000 × 0.005417 = $1,625. So only $1,896 − $1,625 = $271 goes to principal.
By month 180 (halfway), the balance has dropped to about $237,000. Interest = $1,284, principal = $612. The split is nearly 50/50.
By month 340, the balance is about $35,000. Interest = $190, principal = $1,706. Now 90% of the payment reduces your debt.
Reading an amortisation table
An amortisation table lists every payment with five columns: payment number, payment amount, principal portion, interest portion, and remaining balance.
The most useful columns are the cumulative interest total (how much you have paid the bank in total interest) and the remaining balance (how much you still owe).
The Mortgage Calculator generates this table automatically. Toggle the "Show Amortisation" option to see every payment.
How extra payments change the picture
Any amount you pay above the scheduled payment goes directly to principal (assuming no prepayment penalty). This reduces the balance that future interest is calculated on, creating a compounding savings effect.
Example: adding $200/month to our $1,896 payment. Instead of paying off in 360 months, you finish in about 298 months — saving 62 months of payments and roughly $62,000 in interest.
Even one extra payment per year (equivalent to making 13 monthly payments instead of 12) can cut a 30-year mortgage to about 25 years.
Biweekly payments: the easy hack
Instead of paying $1,896 once a month, pay $948 every two weeks. There are 26 biweekly periods in a year, so you end up making 13 full payments instead of 12. The math works out to roughly the same as one extra monthly payment per year.
Check with your lender — some charge a fee for biweekly processing, which may negate the savings. If they do, just make one lump extra payment each year instead.
Try the calculators referenced in this guide
Put the maths into practice — every calculator is free and runs entirely in your browser.
Frequently Asked Questions
Does amortisation apply to all loans?
Most instalment loans (mortgages, auto loans, personal loans) are amortised. Credit cards and lines of credit are not — they are revolving debt with variable payments.
Can I get a non-amortising mortgage?
Interest-only mortgages exist but are risky. You pay only interest for a set period, then face much higher payments when principal repayment kicks in. They are rare for primary residences.
Should I pay extra on my mortgage or invest the money?
It depends on your mortgage rate vs. expected investment returns, your risk tolerance, and your tax situation. If your rate is below 4–5%, investing often wins mathematically. But paying off a mortgage has psychological and cash-flow benefits that spreadsheets do not capture.
The Precision Calculator Editorial Team
The editorial team at Get Precision Calculator writes practical, formula-driven guides that explain the maths behind every calculator on this site. All content is reviewed for accuracy before publishing.
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