Amortization Schedule Explained: How a Loan Gets Paid Off
Learn what an amortization schedule is, why early payments are mostly interest, how to read one, and how extra payments shorten a loan, with a free tool.
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Free tool: Amortization ScheduleAn amortization schedule is a table that shows every payment on a loan, how much of it goes to interest and how much to principal, and the balance left afterwards. Reading one explains why mortgages feel slow to pay off at first, and shows exactly how much extra payments save. This guide walks through a 30-year example and how to use the free Amortization Schedule.
What amortization means
Amortizing a loan means paying it off with equal, regular payments that cover both interest and principal. The payment stays the same, but its make-up changes every month: interest is charged on the remaining balance, so as the balance falls, interest takes a smaller share and principal a bigger one.
Example: a $300,000 loan at 4.5% for 30 years
The monthly payment is $1,520.06, and over 30 years the total interest is $247,220. Here's how the yearly totals shift:
| Year | Interest paid | Principal paid | Balance at year end |
|---|---|---|---|
| 1 | $13,401 | $4,840 | $295,160 |
| 5 | $12,448 | $5,792 | $273,474 |
| 10 | $10,990 | $7,251 | $240,268 |
| 15 | $9,164 | $9,076 | $198,702 |
| 20 | $6,879 | $11,362 | $146,669 |
| 30 | $437 | $17,804 | $0 |
Two things stand out:
- Early payments are mostly interest. In year 1, nearly three-quarters of what you pay is interest.
- Progress is slow, then fast. After 10 years you've repaid only about 20% of the loan; principal doesn't overtake interest until year 15, but after that the balance falls quickly.
How extra payments change the schedule
Extra payments go straight to principal, which cuts the interest charged in every later month. Adding $200 a month to the example, starting in year 5:
- The loan is paid off in 24 years 11 months instead of 30 years.
- Total interest drops to about $204,312, saving about $42,908.
The earlier extra payments start, the more they save, because they remove interest from more future months.
How to read an amortization schedule
- Payment: the same every month (plus any extra you add).
- Interest: this period's interest on the remaining balance.
- Principal: the rest of the payment, which reduces the balance.
- Balance: what you still owe; it reaches zero with the last payment.
- Equity: for a mortgage, the home's value minus the balance.
How to use the Amortization Schedule
- Open the Amortization Schedule.
- Enter the loan amount, the annual interest rate and the term in years.
- Add an optional monthly extra payment and the year it starts; set it to 0 for the standard schedule.
- Read the results: the monthly payment, the payoff time, the total interest and the interest saved by extra payments.
- Study the yearly schedule: the total payments, principal paid, interest paid, extra payments, remaining balance and the share of the loan repaid each year, plus charts of the balance and the interest/principal split.
For mortgage-specific costs such as PMI and taxes, see How to Calculate Your Mortgage Payment.
Frequently asked questions
What is an amortization schedule?
A table listing every loan payment with its interest and principal portions and the remaining balance, from the first payment until the loan is paid off.
Why is so much of my mortgage payment interest?
Because interest is charged on the balance you owe, which is largest at the start. On a $300,000 loan at 4.5%, about $13,400 of the first year's $18,240 in payments is interest.
Do extra payments really make a difference?
Yes. $200 a month extra from year 5 on a $300,000, 30-year loan at 4.5% saves about $42,900 in interest and cuts more than five years off the loan.