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How Does Mortgage Amortization Work?

Perhaps you’ve heard the term ‘mortgage amortization.’ But unless you’ve actually decided to buy a home, you might not have paid much attention to what it means in terms of actually paying a mortgage. The definition is simple: Mortgage amortization is the process of paying a mortgage loan in equal monthly installments.

With a fixed-rate home loan, monthly payments remain the same amount for the life of the loan, regardless of the number of years the loan covers. But from month to month,  the portion of that monthly payment that goes to both the principal and the interest will change.

Amortization provides a clear schedule for paying off a mortgage and the accompanying interest over a specific amount of time. When you first take out a mortgage, the bulk of each monthly payment goes toward interest on the loan; as the mortgage term progresses and you get closer to the end of the term, more of the payment goes toward the principal debt. Using an amortization schedule, you can see how your loan balance and interest decrease over time.

Photo: Shutterstock/fizkes

Sample Amortization Schedule

The following two amortization tables reflect an amortization schedule for a $100,000, 30-year mortgage with an interest rate of 4%. Note how the total monthly payment, including interest and principal, is approximately $477 every month. With the first monthly payment, however, $333 goes to interest and only $144 goes to the principal. By the time the final payment is made, less than $2 goes toward interest and a whopping $476 goes to the principal.

First-year amortization schedule for a $100,000, 30-year mortgage

Month Payment amount Interest Principal Remaining balance
1 $477.42 $333.33 $144.09 $99,855.91
2 $477.42 $332.85 $144.57 $99,711.34
3 $477.42 $332.37 $145.05 $99,566.29
4 $477.42 $331.89 $145.53 $99,420.76
5 $477.42 $331.40 $146.02 $99,274.74
6 $477.42 $330.92 $146.50 $99,128.24
7 $477.42 $330.43 $146.99 $98,981.25
8 $477.42 $329.94 $147.48 $98,833.77
9 $477.42 $329.45 $147.97 $98,685.80
10 $477.42 $328.95 $148.47 $98,537.33
11 $477.42 $328.46 $148.96 $98,388.37
12 $477.42 $327.96 $149.46 $98,238.91

Final-year amortization schedule for a $100,000, 30-year mortgage

Month Payment amount Interest Principal Remaining balance
349 $477.42 $18.68 $458.74 $5,144.96
350 $477.42 $17.15 $460.27 $4,684.69
351 $477.42 $15.62 $461.80 $4,222.89
352 $477.42 $14.08 $463.34 $3,759.55
353 $477.42 $12.53 $464.89 $3,294.66
354 $477.42 $10.98 $466.44 $2,828.22
355 $477.42 $9.43 $467.99 $2,360.23
356 $477.42 $7.87 $469.55 $1,890.68
357 $477.42 $6.30 $471.12 $1,419.56
358 $477.42 $4.73 $472.69 $946.87
359 $477.42 $3.16 $474.26 $472.61
360 $477.42 $1.58 $475.84 $0.00
Photo: Pxhere

Relying On Your Math Skills To Calculate Loan Amortization…

Three factors go into loan amortization:  the loan amount, the loan term, and the loan interest rate. Armed with this information, you could conceivably calculate your mortgage payment on your own, but prepared to apply some complicated math, the likes of which you might not even have encountered during your advanced high school math class.

To calculate your amortized monthly payment:

  1. Determine your monthly interest rate by taking your annual rate and dividing by 12; for these purposes we’ll call the result R.
  2. Add 1 to R; raise that sum to the power of N, which stands for the total number of monthly payments (for a 30-year mortgage, N would equal 360).
  3. Take the product of that equation, multiply by R, then multiply that amount by your loan principal, (P) to get result X.
  4. Add 1 plus R again, raise it to the power of N, then take the product of the equation and subtract 1 to get result Y.
  5. Divide X by Y to determine the monthly payment amount.

…Realizing An Online Mortgage Calculator Might Be Best

With an online mortgage calculator you can easily and efficiently determine the amount of each monthly payment that will go toward the interest and principal every month, the loan balance after each monthly payment, and the amount of interest you’ll pay over the course of the loan.

Additionally, with a mortgage amortization calculator you can compare the cost of  borrowing with different terms such as a 30-year mortgage versus a 20-year mortgage, and  figure out how much interest you could save by making additional principal payments. With a mortgage calculator, you can also determine at which point the equity in your home will reach 20% of the house’s value, allowing you to cancel private mortgage insurance (PMI) and reduce your monthly payment.


To find the home mortgage that best suits your financial needs, it’s a good idea to compare multiple lenders and the loan terms and interest rates they offer. Since a strong credit score can help you secure a low interest rate, check your score before diving into the home mortgage application process.