6 min read · Updated August 14, 2026
How Loan Amortization Actually Works
An amortizing loan has one fixed payment, but the payment is doing two different jobs at once: paying the interest that accrued this month, and reducing the balance. The split between those two jobs changes every single month.
The monthly mechanics
Each month the lender charges interest on the balance you still owe. On a $300,000 loan at 6.5%, the first month's interest is roughly $1,625 — the balance multiplied by one twelfth of the annual rate.
Whatever is left of your payment after that interest charge reduces the balance. Because the balance is now slightly smaller, next month's interest charge is slightly smaller too, so slightly more of the same payment goes to principal.
Why the early years feel slow
At the start of a 30-year mortgage, roughly three quarters of the payment can be interest. It takes about 18 years before principal and interest are evenly split. This is not a fee or a penalty — it is simply what happens when the balance is at its largest.
The practical consequence: total interest is extremely sensitive to the term. Shortening a loan from 30 to 20 years raises the payment modestly but can cut lifetime interest by close to half.
What extra payments do
An extra payment applied to principal removes that amount from the balance permanently, so you never pay interest on it again. That is why a small, consistent overpayment early in the loan has an outsized effect.
Run the numbers on your own loan with the extra-payment field in our mortgage and loan calculators before committing — the saving is often larger than people expect, but so is the loss of liquidity.