How to read an amortization schedule
An amortization schedule lists every payment on a loan and splits it into two parts: the interest charged for that month and the principal that reduces the balance. On a fixed-rate loan the payment stays the same, but the split changes every month.
Interest is worked out on the balance that is still owed. In the first months the balance is at its largest, so most of the payment is interest. Each payment trims the balance a little, the next month’s interest is a little smaller, and a little more of the same payment goes to principal. By the final years almost the whole payment is principal.
Enter a first payment month to date every row and see the month the loan ends. Switch the table to Yearly for totals per calendar year, which is how lenders report interest paid for tax purposes. Without a start year, the table groups payments into loan years of 12 payments instead.
The formulas behind each row
The fixed monthly payment comes from the standard amortization formula:
M = P × r × (1 + r)ⁿ ÷ ((1 + r)ⁿ − 1)
- M
- monthly payment of principal and interest
- P
- amount borrowed
- r
- monthly rate: annual rate as a decimal ÷ 12
- n
- number of monthly payments
Each row of the schedule then repeats three steps:
interest = balance × r · principal = M − interest · new balance = balance − principal − extra
Interest is rounded to the cent every month, as on a lender’s statement, and the final payment is whatever clears the remaining balance, so the schedule always ends at exactly zero. Extra payments go entirely to principal. They don’t change the required payment; they make the balance reach zero sooner.
Worked example: $200,000 at 6% for 30 years
- Monthly rate: 6% ÷ 12 = 0.5%, so r = 0.005; payments: 30 × 12 = 360
- Payment: $200,000 × 0.005 × 1.005³⁶⁰ ÷ (1.005³⁶⁰ − 1) = $1,199.10
- First month: interest $200,000 × 0.005 = $1,000.00, principal $1,199.10 − $1,000.00 = $199.10, new balance $199,800.90
- After 360 payments (the last one is $1,200.14) you have paid $231,677.04 in interest.
What extra principal does to the same loan:
| Extra payments | Total interest | Interest saved | Paid off sooner by |
|---|---|---|---|
| None | $231,677.04 | — | — |
| $5,000 once, with payment 12 | $209,803.05 | $21,873.99 | 1 year, 10 months |
| $100 every month | $182,538.19 | $49,138.85 | 5 years, 5 months |
| $100 a month and $5,000 with payment 12 | $167,799.11 | $63,877.93 | 6 years, 8 months |
With the extra $100 a month, the first year’s payments contain $11,899.61 of interest, $2,489.59 of scheduled principal and $1,200 of extra principal, leaving a balance of $196,310.41. The loan ends after 295 payments instead of 360.
Before you prepay
- Earlier is worth more. A dollar of principal repaid in year one stops collecting interest for the rest of the loan; the same dollar in year 25 saves very little.
- Check for a prepayment penalty. Some loans charge a fee for paying off all or part of the balance early, usually only in the first few years. Your loan documents say whether yours does.
- Tell the lender it is principal. Ask for extra money to be applied to principal, not held as an early payment of next month’s bill, and check that the next statement shows it.
- Paying extra is not the same as a recast. Extra payments shorten the loan and keep the payment unchanged. Some lenders will recalculate (recast) a lower payment after a large lump sum, usually for a fee.
- Weigh it against other uses of the money. Paying down a loan earns you its interest rate, with no market risk, but money sent to the lender is hard to get back. Compare it with the rate on any other debt you carry and with the savings you keep for emergencies.
Monthly cost of a home
For a mortgage payment that includes property tax, insurance and PMI, use the mortgage calculator. To compare loan terms side by side, use the loan calculator.
What the schedule assumes
- The interest rate is fixed for the whole term and every payment is made on its due date.
- Interest is charged monthly at one twelfth of the annual rate. Lenders that accrue interest daily will show slightly different interest in individual months.
- Escrow, insurance, fees and late charges are not part of the schedule.
Frequently asked questions
Why does so little of my early payment go to principal?
Interest is charged on what you still owe, and at the start you owe the most. On a $200,000 loan at 6%, the first payment of $1,199.10 includes $1,000 of interest and only $199.10 of principal. The principal share grows with every payment as the balance falls.
Does paying extra lower my monthly payment?
No. The required payment on a fixed-rate loan stays the same; extra principal makes the balance reach zero sooner, so you make fewer payments and pay less interest. Some lenders offer a recast, which recalculates a lower payment after a large lump sum.
Is it better to pay a lump sum or a little extra every month?
What matters most is how much principal you repay and how early. A lump sum early in the loan saves more than the same money spread over later years. Small monthly extras add up because they start immediately and continue for years.
Why is my lender’s schedule a few cents different?
Lenders differ in small details: some accrue interest daily rather than monthly, some round differently, and payments made before or after the due date change the interest for that month. Over a whole loan these differences are usually small.
What does the yearly view show?
With a first payment date, the yearly view totals principal, extra principal and interest for each calendar year, which matches the way interest is reported for taxes. Without a date, it groups every 12 payments into a loan year.
Sources
Last reviewed September 15, 2026