How to read an amortization schedule
What each column of an amortization schedule means, why early payments are mostly interest, and what extra payments change.
Updated November 1, 2026
See the Loan Amortization Schedule (Excel)
What an amortization schedule is
An amortization schedule is a table with one row for every payment on a loan. Each row shows how much of that payment goes to interest, how much pays down the loan, and what you still owe afterwards.
Mortgages, car loans, student loans and most personal loans are amortizing loans: the payment stays the same every month, but the split inside it changes. Early on most of the payment is interest. By the end almost all of it is principal.
Why it is worth reading
- You see the real cost of the loan. The monthly payment looks manageable. The total interest column often does not.
- You see what you still owe on any date. Useful when you sell, refinance or pay off early.
- You can test extra payments. A small extra amount each month shortens the loan by years, and the schedule shows exactly how many.
The columns, one by one
- Payment number and date. Payment 1 is the first payment, usually a month after the loan starts.
- Starting balance. What you owe before this payment.
- Payment. The fixed amount from the loan terms. On a mortgage this is principal and interest only; property tax and insurance held in escrow are extra.
- Interest. The starting balance times the yearly rate divided by 12. This is the lender's share.
- Principal. The payment minus the interest. This is the part that actually reduces the loan.
- Extra payment. Anything you pay on top. It all goes to principal.
- Ending balance. Starting balance minus principal minus extra. It becomes the next row's starting balance.
Because the interest is worked out on the balance, every dollar of principal you pay lowers the interest on every later row. That is the whole reason extra payments work so well.
How to build one
You need four inputs: the loan amount, the yearly interest rate, the term in years and the first payment date. In Excel or Google Sheets the monthly payment is:
=PMT(rate/12, years*12, -loan)
Then each row is three short formulas. Interest is =starting_balance*rate/12, principal is =payment-interest, and the ending balance is =starting_balance-principal-extra. Copy the row down for as many months as the term, and stop when the balance reaches zero. The last payment is usually a little smaller than the others, because only the leftover balance and its interest are due.
See the Loan Amortization Schedule (Excel)
Mortgage, car loan or personal loan
The math is the same for all three. What changes is the term and how much extra payments matter.
- 30-year mortgage. The interest share stays above half of each payment for well over a decade. Extra payments early on have the biggest effect.
- 5-year car loan. Interest is a smaller share from the start, so the schedule is mostly principal by the second year.
- Personal loan. Usually a higher rate and a short term. Check whether the lender charges a fee for paying early before you plan extra payments.
Some loans work differently: interest-only loans, adjustable-rate mortgages after the fixed period, and credit cards. A fixed schedule only describes them until the rate or the payment changes.
Worked example
A $320,000 mortgage at 6.75% for 30 years, first payment in January 2026. These are the sample numbers in the Reamwise template, so you can check them against the file.
| Loan year | Interest paid | Principal paid | Balance at year end |
|---|---|---|---|
| 1 | 21,495.77 | 3,410.39 | 316,589.61 |
| 5 | 20,442.05 | 4,464.12 | 300,402.27 |
| 10 | 18,655.89 | 6,250.28 | 272,963.20 |
| 20 | 12,653.62 | 12,252.55 | 180,755.93 |
| 30 | 887.22 | 24,018.94 | 0.00 |
The payment is $2,075.51 every month. In the first payment, $1,800.00 is interest and only $275.51 pays down the loan. Even in year 20 interest is still the bigger part; principal only overtakes it in year 21. Over the full 30 years the interest adds up to $427,185.01, more than the loan itself.
Now add $200 a month on top, plus a one-time $5,000 at payment 24. The loan is paid off after 271 payments instead of 360, in July 2048 instead of December 2055. Total interest falls to $299,659.49, a saving of $127,525.52.
Common mistakes
- Comparing loans by payment alone. A longer term lowers the payment and raises the total interest. Look at both.
- Forgetting escrow. The schedule covers principal and interest. Your real monthly bill on a mortgage is higher.
- Using the yearly rate as the monthly rate. Divide by 12. A formula with 6.75% instead of 0.5625% gives nonsense.
- Not telling the lender about extra payments. Many lenders apply extra money to the next payment unless you ask for it to go to principal.
- Letting the last row go negative. Cap the final payment at what is left, or the totals will be wrong.
Questions
Why is so much of my payment interest at the start?
Interest is charged on what you owe, and at the start you owe the most. As the balance falls, the interest part shrinks and the principal part grows, even though the payment stays the same.
Does an extra payment lower my monthly payment?
Usually not. On most fixed loans an extra payment shortens the loan instead. Some lenders will recalculate the payment after a large lump sum (a recast), often for a fee.
Is it better to pay extra every month or once a year?
The same total paid earlier always saves a little more interest, because the balance drops sooner. The difference is small; what matters most is that the extra gets paid.
Why does my lender's schedule differ by a few cents?
Lenders round interest each month and some count days instead of months. Over a whole loan that can move totals by a few dollars. The shape of the schedule is the same.
Can I use it for a car loan?
Yes. Enter the term in years, for example 5, and the same columns apply. Check whether your car loan uses simple daily interest, which makes the exact split depend on the day you pay.
Does the schedule include taxes and insurance?
No. An amortization schedule covers principal and interest only. Property tax, home insurance and mortgage insurance are separate amounts, even if your lender collects them with the payment.
Summary
Each row of an amortization schedule splits one payment into interest on the balance and principal that reduces it. Read the total interest, not only the payment, and test what an extra amount each month does. If you want a ready-made schedule with extra payments, one-time lump sums and the interest saved worked out, the Loan Amortization Schedule does exactly this.
Disclaimer. For general information only. Not tax, legal or financial advice. Check the rules for your country or ask a qualified adviser. Read the full disclaimer.