Amortization Formula Explained
The math behind the Amortization Calculator: the equation, the variables, and the assumptions it makes.
By Onias Derilus, Mortgage Capital · NMLS# 1859012 · Last Updated: June 2026
It builds a payment-by-payment schedule showing how each mortgage payment splits between interest and principal, and how your balance falls to zero over the life of the loan.
The Formula
Interest_month = balance × (rate / 12); Principal_month = payment − Interest_month
Early in the loan the balance is large, so most of each payment is interest and little goes to principal. As the balance shrinks, the interest portion falls and the principal portion grows — which is why progress feels slow at first and accelerates later.
The fixed payment itself comes from the standard amortizing-loan formula. The schedule simply applies that payment repeatedly, recalculating the interest split against the declining balance each month.
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