Amortization is the process of paying off a loan over time through regular payments. Each payment is split between principal (reducing what you owe) and interest (the cost of borrowing). Understanding amortization helps you see why early payments have such a big impact.
How Amortization Works
In the early years of your mortgage, most of each payment goes toward interest. Over time, the balance shifts until most goes toward principal.
Example: $300,000 at 6.5% for 30 Years
Monthly Payment: $1,896
Why Early Payments Matter Most
Since early payments are mostly interest, extra principal payments in the early years have the biggest impact:
$1,000 extra in Year 1 saves ~$4,000 in interest over the loan
$1,000 extra in Year 15 saves ~$1,500 in interest over the loan
$1,000 extra in Year 25 saves ~$300 in interest over the loan
Reading an Amortization Schedule
An amortization schedule shows the breakdown of every payment over the life of your loan:
| Month | Payment | Principal | Interest | Balance |
|---|---|---|---|---|
| 1 | $1,896 | $271 | $1,625 | $299,729 |
| 2 | $1,896 | $273 | $1,623 | $299,456 |
| 12 | $1,896 | $289 | $1,607 | $296,423 |
| 60 | $1,896 | $369 | $1,527 | $281,234 |
| 120 | $1,896 | $531 | $1,365 | $250,891 |
| 360 | $1,896 | $1,886 | $10 | $0 |
Amortization with Extra Payments
When you make extra payments, the amortization schedule changes dramatically:
Standard Schedule
- • 360 monthly payments
- • Total interest: $382,612
- • Payoff time: 30 years
+$200/month Extra
- • ~270 payments
- • Total interest: ~$285,000
- • Payoff time: ~22.5 years
- • Save ~$97,000 in interest
Key Takeaways
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Early payments are mostly interest — that's why extra payments early have the biggest impact
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Every extra principal payment reduces future interest charges
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You can request an amortization schedule from your lender or generate one with our calculator
See your full amortization schedule
View Amortization Schedule