Last reviewed: October 2026 · By the MortgageCompass Editorial Team · How we research
Amortization is the way a mortgage is paid off through equal regular payments. Each payment covers the interest charged that month, and whatever is left reduces the balance. Because interest is calculated on the balance, early payments are mostly interest and later payments are mostly principal, even though the payment itself never changes.
The simulator below builds the full schedule for your loan and shows how much an extra monthly payment would save. Underneath, we follow one typical loan through its life to show why the balance falls so slowly at first, and what that means for refinancing, overpaying and choosing a loan term.
Amortization schedule and extra payment simulator
See how every year of payments splits between interest and principal, and what an extra monthly payment would save.
Illustration using monthly compounding and a fixed rate for the whole period. Canadian fixed-rate mortgages compound semi-annually, and many lenders limit or charge for extra payments, so check your contract. Not financial advice.
One loan, four moments in its life
Illustrative example. Take a loan of 300,000 at a fixed 6.5% over 30 years. The monthly payment is about 1,896, and it stays the same for all 360 months. What changes is how that payment is split.
MONTH 1
1,625 interest, 271 principal
86% of the first payment is interest. The balance falls by just 271.
AFTER 10 YEARS
Balance still about 254,300
After 120 payments, around 228,000 in total, only about 15% of the loan has been repaid.
MONTH 233 (YEAR 20)
The tipping point
For the first time, more of the payment goes to principal than to interest. Half the loan is repaid only at month 257.
MONTH 360
About 10 interest, 1,886 principal
The loan is cleared. Total interest over 30 years: about 382,600, more than the original loan.
This pattern explains several things borrowers notice in practice. Selling or refinancing in the first years leaves you owing almost the full amount you borrowed. Your equity grows mainly through your deposit and any rise in the home’s value, not through repayments. And an extra payment made early has a much larger effect than the same payment made late.
The formula behind the payment
Lenders use the same standard formula to set a fixed payment that clears the loan exactly on the last month:
Payment = Loan × r × (1 + r)n ÷ ((1 + r)n − 1)
- r is the interest rate per payment period. For monthly payments at 6.5% a year, r = 0.065 ÷ 12 = 0.0054167.
- n is the total number of payments. For 30 years of monthly payments, n = 360.
Each month, the interest due is simply the current balance multiplied by r. In month 1 that is 300,000 × 0.0054167 = 1,625. The rest of the payment, 271, reduces the balance, so the next month’s interest is slightly lower and slightly more goes to principal. Repeat that 360 times and you have the full amortization schedule.
Extra payments: small amounts, large savings
Every extra payment goes straight to principal, which reduces the interest charged in every month that follows. On the example loan, paying an extra 200 a month from the start saves about 103,000 in interest and clears the mortgage almost seven years early. You can test other amounts in the simulator.
Before you overpay, check three things:
- Your contract’s prepayment rules. Many fixed-rate deals in the UK, Canada and Australia allow only a limited amount of extra payments each year without a fee. In the US, prepayment penalties are banned on most mortgages and, where allowed, are limited to the first three years of certain fixed-rate loans.
- Higher-interest debts. Paying off a credit card or car loan usually saves more than overpaying a mortgage.
- Your emergency fund. Money paid into a mortgage is hard to get back out. Keep a cash cushion first, or use an offset account if your lender offers one.
Many lenders reduce your term when you overpay, as the simulator assumes. Some lower your monthly payment instead. Ask which one applies, because only the first gives the full interest saving.
How amortization works in each country
- United States: the most common loans are fully amortizing 30-year and 15-year fixed-rate mortgages, so the schedule above is exactly what you sign up for. Our 30-year vs 15-year mortgage guide compares the two.
- Canada: the amortization (often 25 years) is separate from the term (often 5 years), after which you renew at a new rate and the schedule is recalculated. Since December 15, 2024, insured mortgages for first-time buyers and buyers of new builds can be amortized over 30 years. Fixed-rate mortgages compound semi-annually, so payments differ slightly from a monthly-compounding calculation.
- United Kingdom: a repayment mortgage amortizes over the full term, commonly 25 to 35 years, but the rate is usually fixed for only 2 to 5 years. When the deal ends, the payment is recalculated on the remaining balance and term. See our guide to remortgaging.
- Australia: loans are typically 30 years, either principal and interest (amortizing) or interest-only for a set period. Variable-rate loans often allow unlimited extra repayments and offset accounts, which reduce the interest in the same way an overpayment does.
When a loan does not amortize
With an interest-only loan, you pay only the interest for a set period, so the balance does not fall at all. When that period ends, payments jump because the full balance must be repaid over the remaining years. With negative amortization, the payment does not even cover the interest and the unpaid interest is added to the balance, so you end up owing more than you borrowed. Both carry more risk and are less common today, but it is worth checking your loan offer for either feature.
Frequently asked questions
Why is so much of my payment going to interest?
Because interest is charged on the outstanding balance, which is at its highest at the start. As the balance falls, the interest part shrinks and the principal part grows. Your lender has not loaded the interest to the front; it is simply how a fixed payment works.
Does refinancing restart amortization?
Yes. A new loan starts a new schedule, so if you refinance into a new 30-year term, you return to the interest-heavy early years. Choosing a shorter term, or keeping your old payment amount, avoids that. Our guide on whether to refinance covers the trade-offs.
Is it better to make one extra payment a year or a little every month?
Monthly extra payments save slightly more because they reduce the balance sooner, but the difference is small. Choose whichever you will keep doing, and check that your lender applies extra payments to principal straight away.
Where can I see my own amortization schedule?
Your lender can provide it, and in the US the Loan Estimate and Closing Disclosure show the total interest you will pay over the loan. You can also enter your exact loan amount, rate and remaining term into the simulator above.
Sources
- CFPB: Regulation Z, §1026.43 (ability to repay and prepayment penalty limits)
- Department of Finance Canada: 30-year amortizations for first-time buyers and new builds (December 2024)
- CFPB: Understanding your Loan Estimate
This guide is for informational purposes only and is not financial advice. Figures are illustrations based on a fixed rate and monthly compounding. Check your own loan documents and speak to your lender before making extra payments or refinancing.