Mortgage Amortization: What It Is and How to Calculate It

Understand How Lenders Determine Your Monthly Payments

Knowing how lenders determine your monthly mortgage payments can help you plan more confidently as a homebuyer. A mortgage amortization schedule shows the amount of principal and interest in each payment, as well as how your loan balance will decrease over the life of the loan. Understanding how amortization works allows you to estimate long-term costs, know how fast you’ll build equity, and make informed decisions about loan types and repayment strategies.

What Is Mortgage Amortization?

Mortgage amortization is the process of paying off a mortgage through regular monthly payments that gradually reduce both the principal and interest. A mortgage amortization schedule outlines every payment you’ll make on the home loan, allowing you to see how much goes toward interest and how much goes towards paying down your loan balance. Once you understand amortization, you can use a mortgage payment calculator to see how different loan terms or interest rates may change your monthly payment.

How Does a Mortgage Amortization Schedule Work?

A mortgage amortization schedule, also called a mortgage amortization table, displays the amount of each home loan payment that goes toward principal and interest. It will also show you how your total remaining balance will change after each payment. A mortgage amortization schedule typically includes the following factors that influence your amortization:

• Total loan amount
• Loan term (i.e. 15- or 30-year)
• Loan type (i.e. conventional or government-backed)
• Interest rate
• Minimum payment
• Frequency of minimum payments
• Principal and interest allocations
• Total balance after payment

Fixed-Rate vs. Adjustable-Rate Mortgage Amortization

Different loan types amortize differently, and understanding those differences can help you choose between fixed-rate mortgages and adjustable-rate mortgages (ARMs).

• Amortization schedules for fixed-rate mortgages: With a fixed-rate mortgage, your interest rate stays the same for the entire loan term. This means your monthly payment won’t change. Your amortization schedule will show predictable decreases in interest and increases in principal on each payment.
• Amortization schedules for adjustable-rate mortgages: With an adjustable-rate mortgage, the interest rate can change after an initial fixed period, which would cause the amortization schedule to shift over time. As the rate adjusts, interest and principal allocations change as well.

How to Calculate Your Mortgage Amortization

Calculating your own amortization can help you see how much interest you’ll pay over the life of the loan, how quickly you’ll build equity, and how changing your loan term or rate affects your payments. Even without a dedicated amortization calculator, you can estimate monthly payments using a standard amortization formula:

Monthly Payment = P x r(1 + r)ⁿ ÷ ((1 + r)ⁿ -1)
P = loan amount, r = monthly interest rate, n = number of payments

Mortgage Amortization Example

Here’s an example of a mortgage amortization schedule for a $300,000 fixed-rate mortgage with a 30-year loan term and a 3% interest rate that’s repaid monthly. A full amortization schedule for this loan would show 360 monthly payments. This is how the first six months would look:

In this example, you’d pay a little less in interest each month because you’d be paying down the principal balance. As your interest costs decrease, more of your payment will go toward your principal balance. The following month’s interest payment is based on the updated total balance.

Now, here’s how the final six months of the loan would look:

During the final months of a 30-year mortgage, the remaining balance is so small that only a few dollars of each payment go toward interest. Almost all of the payment is applied to the principal, allowing the loan to be paid off completely in month 360. The shift illustrates how amortization accelerates principal repayment over time, especially near the end of the loan term.

Key Considerations for Mortgage Amortization

What your mortgage amortization schedule looks like can be influenced by various financial and personal factors. Understanding your needs and goals can help you make more confident decisions about your long-term housing costs.

• Your financial goals: What you prioritize—such as keeping monthly payments low or paying off your home faster—should guide the amortization schedule you choose. Aligning your mortgage structure with these goals can help ensure your repayment schedule makes sense for your financial plans.
• Interest rate changes: Refinancing or reamortizing your loan can alter your payment schedule and potentially increase your long-term savings. Even small adjustments to your rate or term can significantly impact how quickly you build equity.
• Extra payments: Making even modest additional principal payments can accelerate your amortization timeline and reduce the total interest you pay. Over time, these small contributions can make a notable difference in how much you pay on your loan overall.
• Loan term: A shorter loan term allows you to build equity faster and minimize interest costs, though it typically comes with a higher monthly payment.

Getting prequalified can help you better understand which loan options, interest rates, and terms best fit your budget, giving you a clearer picture of what you can comfortably afford.

Mortgage Amortization FAQs

In this section, we’ll answer some commonly asked questions about mortgage amortization.

What Is a Rapidly Amortizing Mortgage?

A rapidly amortizing mortgage—also known as a growing equity mortgage—starts with monthly payments that increase over the loan term. The additional money in this payment is applied to the principal balance with the goal of paying off your loan sooner, potentially helping you pay less interest over the life of the loan and build home equity faster.

What Is a Negative Amortization Mortgage?

Negative amortization happens when you make mortgage payments that are lower than the interest due that month, so your total mortgage balance will increase. When the interest isn’t fully paid, it’s added to the principal balance. The following month, the interest payment due will be based on the new, higher principal balance. Over time, borrowers with a negative amortization mortgage may end up paying more in interest throughout the life of the loan.

Which Types of Mortgages Are Associated with Negative Amortization?

Mortgage loans that don’t fully amortize or negatively amortize often require a final, large payment at the end of the term. These are sometimes called balloon payment mortgages and can be risky if you can’t afford the final lump sum payment.

Can I Reamortize My Mortgage?

Depending on your loan type and lender, you may be able to reamortize your mortgage, which means recalculating the loan’s payment schedule with the goal of lowering your monthly payments while maintaining the interest rate and the loan term. This process is also called a mortgage recast. To reamortize your mortgage, you’d need to make a large, lump-sum payment that would lower the balance. Reamortizing your mortgage is one way to pay less interest over the life of your loan.

Final Thoughts: Understanding Amortization for Better Planning

By learning about mortgage amortization and understanding all the factors that influence it, you may be able to manage costs and build equity more efficiently. Exploring your options and running the numbers can help you choose a repayment strategy that supports your long-term financial plans. If you’re ready to take the next step, consider getting prequalified to see which loan products and terms best fit your budget and homeownership goals.