Last updated: March 2025
Quick Answer
An amortization schedule breaks down each loan payment into principal and interest. Early payments are mostly interest; later payments are mostly principal.
Key Takeaways
- ✓ An amortization schedule shows how each payment splits between principal and interest
- ✓ Early payments are mostly interest; later payments are mostly principal
- ✓ Extra payments toward principal can save thousands in interest
- ✓ Total interest paid over the life of a loan often exceeds expectations
What Is Loan Amortization?
Amortization is paying off a loan through regular, fixed payments over time. Each payment covers both interest (cost of borrowing) and principal (reducing the balance). This schedule shows every payment, broken down into principal and interest.
How Amortization Works
M = P × [r(1+r)^n] ÷ [(1+r)^n − 1]
Where M = monthly payment, P = principal, r = monthly rate, n = total payments. While the payment stays the same, the principal portion increases over time as the balance decreases.
Reading Your Schedule
- Interest front-loading — Early payments are heavily weighted toward interest
- Principal crossover — The month where more than half goes to principal
- Total interest — The sum of all interest paid (often surprising)
Saving on Interest
Extra principal payments dramatically reduce total interest. For monthly payment details, use our Loan Payment Calculator.
Frequently Asked Questions
What is an amortization schedule?
It is a table showing each loan payment broken down into principal and interest, along with the remaining balance after each payment, over the full term of the loan.
Why does interest decrease over time?
With each payment, you reduce the principal. Since interest is calculated on the remaining balance, the interest portion shrinks while the principal portion grows.