What Amortization Actually Means
An amortized loan has a fixed payment, but the composition of that payment changes every month. Early on, most of it covers interest on the large balance; as the balance shrinks, more of each payment attacks principal. On a 30-year mortgage, it typically takes 18–20 years before the principal portion of your payment exceeds the interest portion — which is why the early years feel like you're barely making progress. The schedule above shows exactly how your loan unwinds, year by year.
The Payment Formula
Monthly Payment = P × r ÷ (1 − (1 + r)−n), where P is the loan amount, r the monthly rate (APR ÷ 12), and n the number of payments. A $250,000 loan at 6.5% for 30 years costs about $1,580 per month — and roughly $319,000 in total interest, more than the loan itself. Seeing that number is usually the moment people start asking about extra payments.
How to Pay Less Interest
- Shorter terms. The same loan at 15 years raises the payment to about $2,178 but cuts total interest by more than half. Run both terms above and compare.
- Extra principal payments. Even one extra payment per year on a 30-year mortgage typically shaves 4–6 years off the loan.
- Rate shopping. Half a percent on a large loan is tens of thousands over the term — the same lesson as CD shopping, in reverse. Speaking of which: paying down high-rate debt usually beats saving at lower rates — compare using our Credit Card Payoff Calculator.
Works for Any Amortized Loan
Mortgages, auto loans, personal loans, student loans with fixed payments — the math is identical, only the numbers change. Enter a 5-year term for a typical car loan or 3 years for a personal loan, and the schedule adjusts automatically.