What an amortization schedule shows
An amortization schedule is the full life story of a loan: for every payment, how much goes to interest, how much reduces the balance, and what is left owing. It is the single most useful document for understanding a debt, and almost nobody looks at one before signing.
The mechanics
Each period, interest is calculated on the current balance: interest = balance × (annual rate / 12). Whatever remains of the fixed payment reduces the principal. Because the balance falls each month, the interest charge falls too, so the principal portion rises — geometrically, not linearly.
Why the front is so heavily weighted to interest
On a $300,000 loan at 6.25% over 30 years, the first payment is roughly $1,847, of which about $1,563 is interest and only $284 touches the balance. After five years you have paid roughly $110,000 and reduced the balance by only about $20,000. This is not a trick — it is simply what charging interest on a large balance produces — but it explains why selling in year three feels like starting over.
How to read your own schedule
- Find the crossover. The year principal first beats interest tells you how long the loan spends mostly enriching the lender.
- Check the balance at your likely exit. Most people move or refinance well before term. Year 5–7 is the number that matters.
- Compare terms. Run 15 and 30 years side by side; the total interest difference is usually startling.
- Test extra payments. Even $100 a month visibly changes the shape of the curve.
What schedules assume
A fixed rate, on-time payments and no changes to the loan. Adjustable-rate mortgages re-amortize when the rate resets. Escrowed taxes and insurance are not part of amortization at all — they pass through your payment but never touch the balance, which is why the payment on your statement is larger than the figure shown here.