A fixed-rate mortgage payment is the same number every month for thirty years. What that number buys is different every month, and the gap between those two facts is the thing an amortisation schedule exists to show.
The mechanism
Each month, in this order:
- Interest is charged on the balance outstanding at the start of the month, at one twelfth of the annual rate.
- Your payment is applied.
- Whatever the payment covers beyond the interest reduces the principal.
The payment is fixed. The interest shrinks as the balance falls. So the principal portion grows by exactly as much as the interest portion shrinks, month after month, which is why a schedule looks like two curves crossing.
The first month of a real loan
Take $300,000 at 6.5% over 30 years. The standard amortisation formula gives a monthly principal and interest payment of $1,896.20:
M = P x i(1 + i)^n / ((1 + i)^n - 1)
where P is 300,000, i is 0.065 / 12, and n is 360.
Month one:
Interest 300,000.00 x (0.065 / 12) = $1,625.00
Payment $1,896.20
Principal 1,896.20 - 1,625.00 = $271.20
Closing 300,000.00 - 271.20 = $299,728.80
Of $1,896.20, just $271.20 reduced the debt. The other $1,625.00 was the cost of borrowing the money for one month.
After a full year of payments totalling $22,754.40, the balance has fallen by roughly $3,360. That is not an error in the arithmetic and it is not a bad deal. It is what borrowing a large sum over a long term costs, made visible.
Why the crossover comes so late
The month where principal first exceeds interest is set by the rate, not by how long you have been paying. Higher rates push it later, because a larger share of every payment is consumed by interest throughout the loan.
This is also why an extra payment early is worth far more than the same payment late. A dollar of principal removed in month 12 avoids interest on that dollar for 348 remaining months. The same dollar in month 300 avoids it for 60. Nothing about the loan changed, only the number of months the reduction gets to compound.
Reading the table
Every schedule on this site has the same five columns:
| Column | What it is |
|---|---|
| Month | The payment number, counting from one |
| Balance | What you owed at the start of the month |
| Interest | Charged on that opening balance |
| Principal | The part of the payment that reduced the debt |
| Remaining | The balance carried into the next month |
Two properties are worth checking on any schedule, including ours.
The interest column should sum to the total interest printed above it. If it does not, the page is rounding for display while calculating at full precision, which means the table and the headline disagree. We round interest to whole cents at the moment it is applied, exactly as a servicer posts it, so the printed rows add up to the printed total.
The final balance should be exactly zero, on the scheduled month and not one either side. An off-by-one here is common: a loop counting from zero reports a 360-month loan as finishing in month 359, or cent-rounding residue spills into a 361st month that should not exist.
What the schedule leaves out
Every figure in a schedule on this site is principal and interest only. Property tax, homeowners insurance, HOA dues and mortgage insurance are real money and are not principal and interest. Folding them in produces a “payment” that matches nothing on any document you hold, so they are excluded and that exclusion is stated on every page.
Your servicer statement will therefore usually show a larger monthly figure than our calculators do. The difference is escrow, and the Consumer Financial Protection Bureau’s glossary of mortgage terms defines the components if your statement does not break them out.
The arithmetic above is the standard amortisation formula, which is mathematics rather than regulation: no agency defines it. What is regulated is the disclosure around your loan, under Regulation Z, 12 CFR 1026.
Questions
- Why is almost none of my early payment going to the loan?
- Because interest each month is charged on the balance outstanding that month, and at the start the balance is the whole loan. The payment is sized to clear the debt over the full term, so early on it is barely more than the interest the balance generates. As the balance falls the interest portion falls with it, and the principal portion grows to fill the same fixed payment.
- When does the split reach half and half?
- Later than most people expect, and the date depends on the rate rather than the term. At typical 30-year rates the crossover falls somewhere in the second half of the loan. A higher rate pushes it later, because more of each payment is being consumed by interest throughout.
- Does an extra payment go entirely to principal?
- On a normal US mortgage, yes, provided you tell the servicer to apply it to principal. The interest for the month has already been calculated from the opening balance, so anything paid beyond the scheduled payment reduces the balance directly and therefore reduces every future month of interest.
- Why does the last payment differ from all the others?
- Because cents do not divide evenly. The scheduled payment is rounded, so across hundreds of months a small residue accumulates, and the final payment absorbs it. A schedule whose last row is identical to all the others is usually one that has not been reconciled against its own total.