Understanding Loan Amortization
A complete guide to how your loan payments are structured over time
An amortization schedule shows exactly how your loan payments are divided between principal and interest over the life of your loan. In the early years, most of your payment goes toward interest, while in later years, more goes toward paying down the principal.
How Amortization Works
Example: $300,000 Loan at 6.5% for 30 Years
• Monthly payment: $1,896
• First payment: $479 to principal, $1,625 to interest
• Last payment: $1,886 to principal, $10 to interest
• Total interest over 30 years: $382,633
The Power of Extra Payments
$100/month Extra
Save ~$56,000 in interest and pay off 5 years early on a $300K loan.
$200/month Extra
Save ~$97,000 in interest and pay off 8+ years early on a $300K loan.
One Extra Payment/Year
Making one extra monthly payment per year can save years off your loan.
Biweekly Payments
Paying half your monthly payment every two weeks equals 13 full payments per year.
Frequently Asked Questions
What is an amortization schedule?
An amortization schedule is a table showing each loan payment broken down into principal and interest. It shows how the loan balance decreases over time until it reaches zero at the end of the loan term.
Why does more go to interest at the beginning?
Interest is calculated on the outstanding balance. When your balance is high at the beginning, the interest charge is also high. As you pay down the principal, less interest accrues each month, so more of your payment goes toward principal.
Should I make extra payments?
Extra payments go directly to principal, reducing your balance faster and saving significant interest over time. However, first ensure you have an emergency fund and no higher-interest debt. Check if your loan has prepayment penalties.