Morsimo
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Key takeaways
- Your payment stays the same on a fixed-rate loan, but the split changes every month: interest shrinks and principal grows.
- On a $300,000 loan at 6.5% for 30 years, the first payment is $1,625.00 interest and only $271.20 principal.
- Halfway through the term (15 years) you have repaid only about 27% of the original balance.
- “Remaining amortization” is how many payments are left before the balance reaches zero on the current schedule.
What amortization means
To amortize a loan is to pay it off in equal installments over a fixed time. Each month the lender charges interest on the balance you still owe, and whatever is left of your payment reduces the balance. Because the balance starts high, interest takes the biggest share of the early payments. As the balance falls, the interest charge falls with it, so more of the same payment goes to principal.
The monthly payment comes from the standard formula M = L × r × (1 + r)n ÷ ((1 + r)n − 1), where L is the loan amount, r is the monthly rate (annual rate divided by 12) and n is the number of payments. The calculator shows the full working in its “show the math” panel.
A worked example: $300,000 at 6.5% for 30 years
The payment is $1,896.20 a month for principal and interest. Here is how the same payment divides at different points:
| Payment number | Interest | Principal | Balance after |
|---|---|---|---|
| 1 | $1,625.00 | $271.20 | $299,728.80 |
| 12 | $1,608.40 | $287.81 | $296,646.82 |
| 60 (year 5) | $1,523.20 | $373.01 | $280,832.93 |
| 120 (year 10) | $1,380.41 | $515.80 | $254,328.38 |
| 240 (year 20) | $909.90 | $986.30 | $166,995.85 |
| 360 (year 30) | $10.22 | $1,885.99 | $0.00 |
After five years of payments you have sent the lender about $113,772, yet the balance has dropped only from $300,000 to about $280,833. Of that money, roughly $94,605 was interest. Over the whole loan you pay $382,633 in interest on top of the $300,000 you borrowed.
Remaining amortization
“Remaining amortization” is the time left until the loan is paid off if you keep paying on schedule. On a 30-year loan you have made 60 payments after five years, so 300 payments, or 25 years, remain. If you make extra principal payments, the remaining amortization shortens even though your required payment does not change. In Canada the word has a slightly different meaning: amortization is the total payoff period (often 25 years) and the “term” is the shorter period (such as 5 years) for which your rate is fixed. The U.S. loans on this site use the term and the amortization period as the same number.
Why extra principal helps so much early on
Every dollar you add to principal in the early years removes a balance that would have been charged interest for decades. That is why a modest extra payment in year one saves far more than the same amount in year twenty. See how much extra payments save for the numbers.
What it means for your decisions
Selling or refinancing early. In the first five to ten years you own only a small slice of the home through paydown; most early equity comes from your down payment and from price changes, not from principal payments. Comparing terms. A shorter loan front-loads principal; see the 15-year vs 30-year comparison.
Estimates for a fixed-rate loan with monthly payments. Your lender’s schedule may differ by a few cents because of rounding. This is not a loan offer.