How Mortgage Amortization Works
A mortgage payment is divided between interest and principal. In the early years, most of the payment is interest. In the final years, most is principal. This is why a $1,264/month payment on a $200,000 mortgage at 6% makes you feel like you’re not making progress early — in month 1, $1,000 of that payment goes to interest and only $264 reduces your balance.
Mortgage amortization example: $200,000 at 6%, 30-year term
| Year | Payment | Interest Portion | Principal Portion | Remaining Balance |
|---|---|---|---|---|
| Year 1 (month 1) | $1,264 | $1,000 | $264 | $199,736 |
| Year 5 | $1,264 | $960 | $304 | $191,000 |
| Year 10 | $1,264 | $892 | $372 | $178,000 |
| Year 15 | $1,264 | $793 | $471 | $158,000 |
| Year 20 | $1,264 | $648 | $616 | $128,000 |
| Year 25 | $1,264 | $430 | $834 | $84,000 |
| Year 30 (last) | $1,264 | $6 | $1,258 | $0 |
An extra $200 payment in year 1 reduces your balance by $200, which reduces next month’s interest by $1 — and that $1 compounds forward for 29 years of remaining payments. An extra $200 in year 25 reduces balance by $200, which reduces remaining interest for only 5 years. Early extra payments are 5–6x more valuable than late ones on a compounding basis.
The Compound Effect of Extra Principal Reduction
When you pay $200 extra in month 1 on a $200,000 mortgage at 6%: your balance becomes $199,536 instead of $199,736. Month 2's interest charges on $199,536 = $997.68 instead of $998.68. That $1/month difference seems trivial — but it compounds. By permanently reducing the balance by $200 earlier, every subsequent month charges slightly less interest, which accelerates principal reduction, which charges even less interest. Over 30 years, that $200 in month 1 generates $1,450 in interest savings (7.25x multiplier).
When to Make Extra Payments for Maximum Impact
The optimal timing: as early as possible in the loan term. Year 1–5 extra payments have the highest multiplier effect. Year 20–25 extra payments still save money but have much shorter compounding windows. If you’re in year 18 of a 30-year mortgage, extra payments still help — but their impact is proportionally smaller than the same dollars paid in year 3.
See How the Math Works on Your Specific Mortgage
Enter your current balance and proposed extra payment to see exactly how much interest each extra dollar saves over your remaining loan term.