How to Calculate Amortization

When you take out a loan to buy a home, your monthly payments cover more than just the amount you borrowed. They also include interest, which is the cost of borrowing money from a lender. 

Each payment you make is split between interest costs and your loan balance (called the principal). As the months roll by, more and more goes toward the principal — the actual amount you borrowed. That shifting balance? That’s amortization. 

Knowing how to calculate amortization helps you see where your mortgage payments are really going each month and how your loan is getting paid down. It’s a useful way to track progress and help you pinpoint ways to save money along the way. 

Key takeaways 

• Amortization shows you how your mortgage payment splits between interest and principal — and how that balance shifts over time. 
• A mortgage amortization calculator gives you a clear look at how fast your loan pays down and how much interest you’ll pay over the life of the loan. 
• Reviewing your amortization schedule can uncover opportunities to save over the life of the mortgage, such as by making extra payments to reduce interest and shorten the term of your loan. 
• AmeriSave Loan Experts and online tools help you compare loan options and plan confidently for your future. 

What is amortization? 

Amortization is the structured way of paying off a mortgage through scheduled monthly payments. Each payment covers interest and principal, but the split isn’t 50/50. The ratio changes over time. 

During the early years of your loan, more of your monthly mortgage payment goes toward interest. But as time goes on, more of it goes toward reducing the loan balance. This shifting payment structure is what defines amortization.  

Learning how amortization works helps you see where your money’s going and how you might pay off your loan faster. 

Why it matters 

Getting a feel for the basics of how amortization works — and using a mortgage amortization calculator to generate an amortization schedule — provides a clearer picture of your financial future.  

Whether you’re buying a home or simply want to know more about the impact future mortgage payments will have on your principal, an amortization calculator can help you: 

• See what portion of each payment will go toward principal vs. interest. 
• Estimate how long it’s likely going to take you to pay off your loan. 
• Identify the total interest you’ll pay over the term of your mortgage. 
• Get an idea of how extra payments could save you money and help you pay off your loan early. 

Learn more: Wondering how to knock years off your loan and cut interest at the same time? Here’s how some homeowners pay off their mortgages early. 

How to calculate amortization on a mortgage 

To calculate amortization, you first need a few basic details about your home loan. The following numbers help determine how your monthly payments split between interest and principal: 

• Loan amount: How much did you borrow? 
• Interest rate: This rate represents how much the lender charges to lend you the money. 
• Loan term: How long do you have to pay back your loan? This is usually 15 to 30 years. 
• Monthly payment amount: This does not include property taxes, homeowners’ insurance, or private mortgage insurance (PMI). 

When you plug these numbers into a mortgage amortization calculator, the tool will build a full schedule of your payments that shows how your balance goes down over time. This can be helpful when comparing types of home loans or planning for early payoff options. 

Mortgage amortization formula 

Using an amortization calculator is the simplest way to get your full mortgage schedule. But you can also use the following formula to determine how much each of your mortgage payments applies to your principal: 

Principal payment (PP) = MPA – [OLB x (Interest Rate ÷ 12)], where … 

• MPA = monthly payment amount 
• OLB = outstanding loan balance 
• 12 = months in a year 

Subtract this principal amount from your total monthly payment to learn how much of the payment applies to interest. 

Example of calculating mortgage amortization 

Let’s say you have a $300,000 mortgage with a 6% interest rate over a 30-year term. Your monthly payment (excluding taxes and insurance) is about $1,798.65. 

To figure out how much of your next payment goes toward the principal, you’d start with your outstanding loan balance. Assuming you’ve already made a few payments and your current balance is down to $295,000, here’s how you apply the above formula: 

Principal payment (PP) = MPA – [OLB x (Interest Rate ÷ 12)] 

= 1,798.65 – [295,000 × (0.06 ÷ 12)] 

= 1,798.65 – [295,000 × 0.005] 

= 1,798.65 – 1,475.00 

= $323.65 

In this example, $323.65 of your next payment knocks down your loan balance. The other $1,475 covers interest. As you keep paying down your mortgage, the amount that goes toward interest will shrink while the amount that pays down the principal grows.  

Unlike renting, every mortgage payment increases your share of ownership in your home until the loan is fully repaid, and you own it outright. The more you pay toward the principal — and the more your home’s market value increases with time — the more home equity you have, which can be a powerful financing tool for renovations, debt consolidation, and more. 

To see your full amortization schedule over 30 years, our mortgage amortization calculator above will do the math for you in seconds. 

What is an amortization schedule? 

An amortization schedule is a detailed table that shows how your mortgage will be paid down, month by month, during the life of your loan. It breaks down exactly how much of each scheduled payment will go toward interest, how much will apply to the principal, and the remaining loan balance after each payment. 

So, if you’ve ever wondered how much of your payment is actually reducing the amount you owe, your amortization schedule is where to look. 

An online tool is your best bet to calculate a loan amortization schedule. And most lenders provide a schedule when your loan closes.  

Regardless of how you get it, an amortization schedule helps you visualize how your balance drops over time — how early payments are interest-heavy while later ones contribute more toward your balance. 

Here’s an example of the first three months of the amortization schedule from our earlier example — a $300,000 loan at 6% interest over 30 years, with a monthly payment that’s $1,798.65: 

Payment No.	Principal	Interest	Remaining balance
1	$298.65	$1,500	$299,701.35
2	$300.14	$1,498.51	$299,401.20
3	$301.65	$1,497.01	$299,099.56

Disclaimer: The figures shown in the example above are for illustrative purposes only and do not reflect current market rates or actual loan offers.  

A full amortization schedule includes numbers for all 360 months of your loan term and gives you a snapshot of the total interest you’ll pay over the life of the loan (in this case, $347,514.57). 

Want to run your own numbers? Plug your loan information into our mortgage amortization calculator above and see your personalized schedule. 

Understanding mortgage math

Knowing how your mortgage works — especially how your monthly payments are split between interest and principal — can help you make smarter decisions about your loan.  

A mortgage amortization calculator is a valuable tool whether you’re considering a refinance, planning to pay off your loan early, or simply want to better understand where your money goes each month. 

At AmeriSave, our Loan Experts are here to help you explore mortgage loan options and find the right path forward.  

Ready to run your numbers? Apply now, and take the next step toward homeownership with confidence. 

Frequently asked questions 

What is an amortization schedule? 

An amortization schedule is a table that shows how your loan will be paid off over time. It breaks down each monthly payment into how much goes toward interest, how much reduces your loan balance (the principal), and how your balance drops with each payment. It’s a helpful tool for understanding the long-term cost of your loan and tracking your progress. 

How do I calculate amortization with extra principal payment? 

The easiest way to calculate amortization with extra payments is to use our mortgage amortization calculator that lets you plug in prepayments. Enter the amount and frequency of your extra payments, which go straight toward your loan balance, helping you pay less interest and finish your loan faster. Over time, even small extra payments can lead to big savings. 

What do I need to know to calculate loan amortization? 

To calculate loan amortization, you’ll need your loan amount, interest rate, loan term (typically 15 or 30 years), and monthly payment amount (excluding insurance and taxes). Using this information in our amortization calculator or amortization formula shows you how each payment is split between principal and interest and how your balance is paid down over time.