Amortization is the process of paying off a loan through fixed, regular payments over time. In a fully amortizing mortgage, each payment covers both interest and principal — but not in equal proportions. Early payments are mostly interest. Late payments are mostly principal. This is why building equity feels slow at first and accelerates dramatically toward the end.
M = P × [r(1+r)^n] ÷ [(1+r)^n − 1] where: M = monthly payment, P = principal loan amount, r = monthly interest rate (annual rate ÷ 12), n = total number of payments (years × 12). Example: $300,000 at 6.5% for 30 years → r = 0.005417, n = 360 → M = $1,896.20. Over 30 years you'll pay $382,633 total — meaning $82,633 is pure interest on a $300,000 loan.
| Payment # | Principal | Interest | Remaining Balance |
|---|---|---|---|
| 1 | $271.20 | $1,625.00 | $299,728.80 |
| 60 (Year 5) | $366.91 | $1,529.29 | $278,967.43 |
| 120 (Year 10) | $519.83 | $1,376.37 | $250,927.65 |
| 180 (Year 15) | $736.52 | $1,159.68 | $213,276.41 |
| 240 (Year 20) | $1,043.59 | $852.61 | $156,487.21 |
| 300 (Year 25) | $1,478.67 | $417.53 | $77,132.15 |
| 360 (Final) | $1,876.23 | $19.97 | $0.00 |
Table based on $300,000 loan at 6.5% fixed for 30 years.
| Factor | 30-Year Fixed | 15-Year Fixed |
|---|---|---|
| Loan Amount | $300,000 | $300,000 |
| Rate | 6.5% | 5.75% |
| Monthly Payment | $1,896.20 | $2,491.23 |
| Total Interest Paid | $382,633 | $148,421 |
| Interest Savings | — | $234,212 saved |
Making just one extra payment per year ($1,896 applied to principal) shortens a 30-year mortgage to approximately 24 years and saves about $46,000 in interest on a $300,000 loan at 6.5%. Making an extra $200/month toward principal: payoff in ~22 years, save ~$72,000. Biweekly payments (paying half the monthly payment every two weeks): you make 26 half-payments = 13 full payments per year, trimming roughly 5-7 years off a 30-year term. The key: extra payments in the early years have the largest impact because they reduce the principal that future interest is calculated on.