How the schedule works
Every monthly payment gets split two ways. Interest is charged on whatever you still owe, and the rest of the payment reduces the balance. The payment itself comes from the standard amortization formula:
where L is the loan amount, r the monthly interest rate, and n the number of monthly payments. At the start the balance is large, so most of the payment goes to interest. As the balance falls, the interest charge falls with it, and more of the same payment clears principal. Anything extra you pay goes straight to the balance, which is why a modest extra amount can remove whole years from the end of the loan.
Worked example
A $300,000 loan at 6% over 30 years costs $1,798.65 a month and $347,514.57 in interest over the full term. Adding $200 a month clears it in 279 months, that's 23 years and 3 months, with $256,341.13 of interest, saving $91,173.43.
Frequently asked questions
Why are my early payments mostly interest?
Interest is charged on the outstanding balance, and at the start the balance is at its biggest. On a $300,000 loan at 6%, the first month's interest is $1,500, so only about $300 of that first $1,798.65 payment touches the principal. The split improves every month as the balance falls.
Do extra payments change my required monthly payment?
No. Your lender still expects the same monthly amount. Extra payments shorten the loan from the end instead, because every dollar of balance you clear early stops accruing interest for the rest of the term.
Why don't my numbers match my lender's statement exactly?
Lenders often count interest by the exact number of days in each period rather than a flat twelfth of the year, and statements can include fees, escrow, or rounding of their own. Small differences of a few dollars are normal, and the shape of the schedule will still match.