A mortgage repayment looks like a single number, but it is two numbers added together: interest on the balance, and principal that reduces the balance. The interest part is computed fresh every month, and the principal part is whatever remains of the payment. Because the balance falls over time, the interest part falls and the principal part rises, month by month, until the last payment is almost entirely principal. This guide works through that split, the formula that sets the payment, the schedule that records it, and the three ways of paying extra, with the numbers shown at every step.

The split: interest first, principal with the rest

Each month, the lender charges interest on the outstanding balance at the monthly rate, which is the yearly rate divided by 12. On a $300,000 loan at 6 percent, month one interest is $300,000 times 0.5 percent, or $1,500. If the payment is $1,799, the remaining $299 goes to principal, and the balance falls to $299,701. Month two interest is $299,701 times 0.5 percent, or about $1,499, leaving about $300 for principal. The shift is tiny each month and enormous over years.

By year ten, the balance has fallen to about $251,000, and the interest share of each payment is about $1,255, leaving about $544 for principal. By year twenty, the balance is about $162,000, interest is about $810, and principal is about $989. The crossover, where principal exceeds interest, comes around year eighteen on this loan. The schedule is front-loaded with interest by construction, not by lender choice: it is the arithmetic of charging interest on a falling balance.

A payment holiday or interest-only period breaks this pattern deliberately: with no principal paid, the balance does not fall, and the interest share never shrinks. That is why interest-only loans end with the full capital still owed, and why a payment holiday extends the term or raises later payments. The standard repayment schedule assumes every payment includes principal.

The formula that sets the payment

The payment is set so that the same amount, paid every month, reduces the balance to exactly zero at the end of the term. The formula is: payment equals principal times the monthly rate times (1 plus monthly rate) to the power of payments, divided by that factor minus 1. For $300,000 at 6 percent over 360 months, the payment is about $1,799, and 360 payments of $1,799 total about $647,600, of which about $347,600 is interest.

The formula has three inputs, and each moves the payment differently. Raising the principal raises the payment proportionally. Raising the rate raises the payment more than proportionally, because it raises both the interest share and the compounding. Extending the term lowers the payment but raises total interest, because the balance stays higher for longer. The calculator shows all three effects live, which is the fastest way to feel them.

Rounding matters at the cent level: the formula payment is rounded to cents, and the final payment is adjusted by a few cents to clear the balance exactly. Statements sometimes show a final payment a few dollars different from the regular payment for this reason, and it is not an error.

Reading your amortisation schedule, row by row

An amortisation schedule is a table with one row per payment: payment number, payment amount, interest portion, principal portion, and remaining balance. The first rows show interest dominating; the middle rows show the crossover; the last rows show principal dominating. The total column at the foot gives total interest, which is the true cost of the loan beyond the principal.

Three readings of the schedule answer three questions. Total interest answers what the loan costs. The balance at any date answers what is owed if you sell or refinance then. The interest share in a given year answers what portion of that year payments was deductible, where mortgage interest is deductible. The calculator schedule on this page gives all three, and the chart shows the balance falling, slowly then faster, over the term.

Extra payments appear in the schedule as additional principal rows, and their effect is visible immediately: the balance line steps down, and every later interest figure falls. That visibility is the point of the schedule: it turns an abstract saving claim into a row-by-row fact.

Monthly extra, yearly lump sum, or biweekly: three ways to pay extra

A monthly extra is the simplest: add a fixed amount to every payment, directed to principal. On the example loan, $200 extra a month finishes the loan in about 23 years and saves roughly $91,000 in interest. A yearly lump sum, such as a bonus or tax refund applied once a year, saves less than the same total spread monthly, because it acts later on average, but it suits irregular income.

A biweekly schedule pays half the monthly payment every two weeks, giving 26 half-payments a year, or 13 monthly payments. The thirteenth payment is an extra $1,799 a year on the example loan, shortening the term by about four years. The same result comes from one extra monthly payment a year, or from adding one-twelfth of the payment each month: the mechanism is identical.

In the UK, most fixed deals allow overpaying up to 10 percent of the balance a year without charge, which is the allowance to use before the term ends. Above it, early-repayment charges may apply. In the US, most modern mortgages have no prepayment penalty, but the note should still be checked, and extras should be directed to principal in writing, with the next statement confirming the application.

Mistakes in reading repayments

First, thinking the payment falls as the balance falls: it does not, on a fixed mortgage. The payment is fixed and the term shortens, unless the loan is recast. Second, thinking extra payments reduce the next payment: they reduce the balance and the term, not the scheduled amount. Third, applying extras to future payments instead of principal, which prepays interest and principal together and saves nothing.

Fourth, ignoring escrow: taxes and insurance are collected with the payment but are not part of the principal-and-interest split, and extra principal payments do not reduce them. Fifth, comparing loans by payment alone: a lower payment over a longer term can cost far more in total interest, and the schedule total, not the monthly figure, is the cost to compare.

Frequently Asked Questions

How do I calculate paying off my mortgage early?

Use the loan formula for the payment, then apply extra payments to principal in the schedule. Each extra dollar cuts the balance and therefore every future interest charge. The calculator shows the new payoff date and interest saved.

How much extra should I pay on my mortgage each month?

Whatever survives the budget after an emergency fund and higher-rate debt. On a $300,000 loan at 6 percent, $200 extra saves roughly $91,000 and nearly seven years; $100 saves roughly $53,000.

Is it better to make extra payments or a lump sum?

A lump sum early saves more than the same total spread later, because it cuts the balance while the most future interest remains. But a regular monthly extra is easier to sustain, and automation beats good intentions.

Do extra mortgage payments go to principal?

They should, but only if directed that way. Instruct the lender in writing that extras apply to principal, and check the next statement: the balance should fall by the extra amount plus the scheduled principal.

Can extra payments hurt my mortgage?

Only through liquidity: money paid into the mortgage is locked until sale or refinance. Keep an emergency fund first, and check for prepayment penalties, though most modern US mortgages have none.

What is the difference between this and a mortgage calculator?

A mortgage calculator gives the payment from loan, rate, and term. This calculator adds the schedule and the extra-payment analysis: the new payoff date, the interest saved, and the row-by-row split.