The amortization curve works against you early — and for you later.
In the early years of a 30-year mortgage, most of your payment goes to interest. On a $300,000 loan at 6.5%, your first payment of $1,896 splits into approximately $1,625 in interest and only $271 in principal. Extra payments made early in the loan life hit principal directly — bypassing the interest calculation entirely — which is why early extra payments are so powerful.
By year 20, that same payment splits closer to $800 interest and $1,096 principal. Extra payments at that stage still help, but the leverage is lower. The CFPB explains amortization and how lenders structure this front-loaded interest schedule.
The 4-step math behind the payoff calculation.
- 1 Calculate monthly interest. Multiply your remaining balance by (annual rate ÷ 12). On $300,000 at 6.5%: $300,000 × (0.065 ÷ 12) = $1,625 interest for month 1.
- 2 Subtract interest from payment. Regular payment ($1,896) minus interest ($1,625) = $271 goes to principal. That's your normal principal reduction for month 1.
- 3 Add extra payment to principal. Your $200 extra monthly payment goes entirely to principal: $271 + $200 = $471 principal reduction. New balance: $300,000 − $471 = $299,529.
- 4 Repeat until balance reaches zero. Each month the lower balance means less interest, so more of your regular payment goes to principal — compounding the payoff acceleration every single month.
Always confirm your servicer applies extra payments to principal.
Not all mortgage servicers automatically apply extra payments to principal. Some apply them to future scheduled payments instead — which saves you zero interest. When you make a payment above the required amount, clearly note "apply to principal" on the check or in the online payment notes. Call your servicer to confirm their policy. Most major lenders (Chase, Wells Fargo, Bank of America) have online options to designate the extra amount.
