Updated May 2026. Examples use fixed-rate, level-payment conventional framing; ARMs add index resets on top of this schedule logic.
Amortization is the engine behind the mortgage: each month, interest accrues on the unpaid balance, and the remainder of your fixed payment applies to principal. Early months are interest-heavy because the balance is large; later months flip toward principal without any change in your contractual payment—unless you prepay, recast, or modify the note.
Level payment formula
Let P = principal, r = annual note rate ÷ 12, n = months. Payment:
M = P × r × (1 + r)n ÷ ((1 + r)n − 1)
Month-k interest = balancek−1 × r; principalk = M − interest. Repeat until balance ≈ 0. That recursion is what calculators and servicers implement—see also how to calculate loan interest.
Snapshot: $320,000 @ 6.5%, month 1 vs month 120
Illustrative P&I only (taxes/insurance/MI excluded).
| Month | Start balance | Interest portion | Principal portion |
|---|---|---|---|
| 1 | $320,000 | ~$1,733 | ~$290 |
| 120 | ~$271,700 | ~$1,472 | ~$551 |
Same contractual payment—different split. That is why “extra to principal” in year one saves more lifetime interest than the same dollars in year twenty.
Equity vs amortization
Scheduled amortization is contract-driven paydown. Equity also includes home value changes and any prepayment. For PMI removal and LTV math, see PMI removal and the home equity hub.
Where this connects in the cluster
- 15 vs 30-year term reshapes n and total interest.
- Extra payments shorten the effective schedule.
- Refinance break-even asks whether replacing the schedule clears fees.
Reference sources
- CFPB — Loan options overview
- Freddie Mac — PMMS (survey context for market rates, not a prediction)