Amortisation

Amortisation is the schedule of how a fixed-payment loan’s monthly payment is split between interest and principal across the loan’s life. The monthly payment is constant; the split is not. Early in the loan, most of each payment is interest; late in the loan, most is principal.

Concrete example: $400,000 mortgage at 7% over 30 years pays $2,661/month. In month one, $2,333 of that is interest (7% ÷ 12 × $400,000) and only $328 is principal. By month 180 (halfway through the loan), about $1,500 is interest and $1,150 is principal. Month 360 is almost entirely principal.

Why front-loaded? Interest is computed on the remaining principal balance. The balance is highest early; therefore interest is highest early. As principal shrinks, the interest portion of each payment shrinks proportionally and the principal portion grows. The math falls out of the constant-payment formula.

Practical implications: paying off a mortgage in year 5 returns very little equity beyond the down payment. Extra principal payments in the early years compound powerfully (each dollar paid early avoids years of compounding interest). The standard amortisation table is what every mortgage calculator generates.