What is amortization?
Amortization is paying off a loan with equal monthly payments. Each payment covers that month's interest first and the rest pays down the loan, so early payments are mostly interest and later ones mostly principal. The table that shows this, payment by payment, is the amortization schedule.
Source CFPB · What is amortization? ↗
With and without extra payments
Extra payments go straight to the balance. The monthly payment stays the same, but the loan ends sooner and less interest builds up.
| Paying | Time | Total interest |
|---|---|---|
| No extra payments | 30 years | $287,752.96 |
| With your extra payments | 24 years 2 months | $221,651.82 |
Source CFPB · Can I make additional payments on my student loan? ↗CFPB · What is a prepayment penalty? ↗
How to calculate amortization
Lenders use a standard formula for the payment (the same as Excel's PMT function), then split each payment into interest and principal.
Here it is with your numbers:
- Loan amount (P): $200,000.00.
- Monthly interest rate (r): 7.18% ÷ 12 = 0.005983.
- Number of monthly payments (n): 30 years × 12 = 360.
- Put them into the formula: $200,000.00 × 0.005983 ÷ (1 − 1.005983^−360) = $1,354.87.
- Month 1 interest: $200,000.00 × 7.18% ÷ 12 = $1,196.67.
- Month 1 principal: $1,354.87 − $1,196.67 + $100.00 extra = $258.20.
- Balance after month 1: $200,000.00 − $258.20 = $199,741.80.
It means month 1 pays $1,196.67 of interest and $258.20 off the loan. Each month the balance is lower, so less goes to interest and more to the loan; month 2 starts from $199,741.80.
Source Microsoft Support · PMT function ↗CFPB · How does paying down a mortgage work? ↗
Amortization schedule
Year by year: what you pay off, what goes to interest and what you still owe at the end of each year.
| Year | Interest paid | Balance at year end |
|---|---|---|
| 1 | $14,255.99 | $196,797.55 |
| 2 | $14,018.35 | $193,357.46 |
| 3 | $13,763.03 | $189,662.05 |
| 4 | $13,488.79 | $185,692.40 |
| 5 | $13,194.20 | $181,428.16 |
| 6 | $12,877.76 | $176,847.48 |
| 7 | $12,537.81 | $171,926.85 |
| 8 | $12,172.65 | $166,641.06 |
| 9 | $11,780.39 | $160,963.01 |
| 10 | $11,359.02 | $154,863.59 |
| 11 | $10,906.37 | $148,311.52 |
| 12 | $10,420.15 | $141,273.23 |
| 13 | $9,897.82 | $133,712.61 |
| 14 | $9,336.74 | $125,590.91 |
| 15 | $8,734.04 | $116,866.51 |
| 16 | $8,086.58 | $107,494.65 |
| 17 | $7,391.10 | $97,427.31 |
| 18 | $6,643.99 | $86,612.86 |
| 19 | $5,841.44 | $74,995.86 |
| 20 | $4,979.36 | $62,516.78 |
| 21 | $4,053.27 | $49,111.61 |
| 22 | $3,058.45 | $34,711.62 |
| 23 | $1,989.83 | $19,243.01 |
| 24 | $841.88 | $2,626.45 |
| 25 | $22.81 | $0.00 |
Show every payment (month by month)
| Month | Interest | Balance |
|---|
FAQs
How do I calculate amortization?
First work out the monthly payment with the standard formula, M = P × r ÷ (1 − (1 + r)^−n). Then, each month, the interest is the balance × the yearly rate ÷ 12, the rest of the payment pays down the loan, and the next month starts from the lower balance. The steps above show it with your numbers.
What is the amortization schedule for a $200,000 mortgage loan?
At 7.18% (the average 30-year rate) the payment is $1,354.87 a month. In the first year $14,296.27 goes to interest and only $1,962.17 to the loan; over 30 years the interest adds up to $287,752.96. The year-by-year table above shows the rest.
Does amortization change with extra payments?
Yes. An extra payment goes straight to the balance, so every later month charges interest on less and more of the same payment goes to the loan. Your payment stays the same, but the loan ends sooner. Ask your servicer to put extra money toward the balance, not toward a future payment.
Source CFPB · Can I make additional payments on my student loan? ↗
What happens if I pay an extra $100 a month on my 30 year mortgage?
On a $200,000 loan at 7.18%, you would be debt-free 5 years 10 months sooner and save $66,101.14 in interest. Some mortgages charge a prepayment penalty, usually only for paying off the whole loan early, so check with your lender.
What happens if I pay 4 extra mortgage payments a year?
On a $200,000 loan at 7.18%, four extra payments a year ($5,419.48 paid once a year) would clear the loan in 15 years 7 months and save $154,021.26 in interest. Type it into "Extra every year" to try your own loan.
Sources
- CFPB: What is amortization?
- CFPB: How does paying down a mortgage work?
- CFPB: Can I make additional payments on my student loan?
- CFPB: What is a prepayment penalty?
- Microsoft Support: PMT function
- Freddie Mac: Mortgage rates (week of 2026-11-05)