The basic formula: what goes where in each payment

Your monthly mortgage payment is split between principal (the amount you borrowed) and interest (what the lender charges you for borrowing). The split changes every month, even though your total payment stays the same. Early payments are mostly interest; later payments are mostly principal.

To find how much of any single payment goes to each, you need three numbers: your loan amount, your interest rate, and how many payments remain. The formula is straightforward: multiply your remaining loan balance by your monthly interest rate, and that tells you how much interest you owe that month. Subtract that from your total payment, and the rest goes to principal.

Here is the math in order. If you have a $300,000 loan at 6.5% annual interest with 360 payments (30 years), your monthly interest rate is 6.5% divided by 12, which equals 0.542%. On month one, you owe $300,000 × 0.00542 = $1,626 in interest. If your total payment is $1,896, then $1,896 − $1,626 = $270 goes to principal. Your new balance is $299,730.

Key Takeaways

  • Interest for each month is calculated by multiplying your remaining loan balance by your monthly interest rate (annual rate divided by 12).
  • Principal for that month is whatever is left after you subtract the interest from your total payment.
  • As your balance shrinks, the interest portion shrinks and the principal portion grows, even though your payment amount stays the same.
  • An amortization schedule shows you the principal-interest split for every single payment over the life of the loan.
  • You can calculate this by hand for one month or use a spreadsheet to build a full schedule; most lenders provide one automatically.

Why the split changes every month

Interest is charged only on the money you still owe. As you pay down the principal, there is less balance left, so the interest charge gets smaller. This means more of each payment goes toward principal as time passes.

In month one of that same $300,000 loan, interest is $1,626 and principal is $270. By month 180 (halfway through), your balance has dropped to around $150,000, so interest that month is only about $813, leaving $1,083 for principal. By month 359 (the last month), interest is nearly gone and almost the entire payment goes to principal.

Building an amortization schedule in a spreadsheet

An amortization schedule is a table that shows the principal-interest breakdown for every payment. You can build one in Excel, Google Sheets, or any spreadsheet tool in about five minutes.

Set up four columns: Payment Number, Beginning Balance, Payment Amount, Interest, Principal, and Ending Balance. In row two, enter 1 for the payment number and your original loan amount as the beginning balance. In the Interest column, enter the formula: Beginning Balance × (Annual Rate ÷ 12). In the Principal column, enter: Payment Amount − Interest. In the Ending Balance column, enter: Beginning Balance − Principal. Then copy that row down for all 360 payments (or however many you have).

The spreadsheet will recalculate automatically as it goes down, because each row's ending balance becomes the next row's beginning balance. By the end, your balance should be zero (or within a few cents, due to rounding).

What your lender's amortization schedule shows

Most lenders send you an amortization schedule when you close on the loan. It lists every payment, the interest and principal for that payment, and your remaining balance. You can use it to see exactly where your money goes each month without doing any math yourself.

If you did not receive one, you can request it from your lender's loan servicer — the company that collects your payments. Many servicers also post it online in your account portal. Some will email it to you if you ask.

You can also verify the schedule by checking one or two months by hand using the formula above. If your numbers match the lender's, you know the schedule is correct.

How extra payments change the split

If you pay more than your required monthly payment, the extra goes entirely to principal. This shrinks your balance faster, which means less interest is charged on future months, and you pay off the loan sooner.

For example, if you pay $2,396 instead of $1,896 in month one, the extra $500 goes straight to principal. Your new balance is $299,230 instead of $299,730. Next month, interest is calculated on that lower balance, so you save a small amount of interest that month too. Over the life of the loan, even small extra payments add up to significant interest savings.

The difference between fixed and adjustable rates

With a fixed-rate mortgage, your interest rate never changes, so the calculation stays the same for all 360 payments. The interest portion of your payment shrinks predictably, and you can rely on the amortization schedule your lender gave you.

With an adjustable-rate mortgage (ARM), your interest rate changes on a set schedule — often after three, five, seven, or ten years. When the rate adjusts, your monthly payment usually changes too, and you need a new amortization schedule from that point forward. The principal-interest split recalculates based on the new rate and the remaining balance.

Common mistakes when calculating by hand

The most frequent error is forgetting to divide the annual interest rate by 12 to get the monthly rate. If your rate is 6.5%, your monthly rate is 0.542%, not 6.5%. Using the annual rate directly will give you a number that is 12 times too large.

Another mistake is using the original loan amount instead of the remaining balance. Interest is always charged on what you still owe, not what you borrowed. After the first payment, the balance is lower, so the interest calculation changes.

A third error is rounding too early. If you round the interest to the nearest dollar before subtracting from the payment, your principal number will be off by a few cents, and that error compounds through the rest of the schedule. Keep at least two decimal places until the very end.

Frequently Asked Questions

Can I use an online calculator instead of doing the math myself?

Yes. Many free mortgage calculators online will show you the principal-interest split for any month, or generate a full amortization schedule. You enter your loan amount, interest rate, and loan term, and the calculator does the work. This is faster and less error-prone than a spreadsheet, though understanding the formula helps you spot mistakes if something looks wrong.

Why does my actual payment differ from what the amortization schedule shows?

Property taxes, homeowners insurance, and mortgage insurance (if you put down less than 20%) are often bundled into your monthly payment but are not part of the principal-interest calculation. Your lender's statement should break down the full payment into principal, interest, taxes, insurance, and any other fees. The amortization schedule covers only principal and interest.

If I pay off my mortgage early, do I save a lot on interest?

Yes. Interest is charged only on the balance you owe. If you pay off the loan in 20 years instead of 30, you avoid 10 years of interest charges on a shrinking balance. Even paying an extra $100 or $200 per month saves thousands in interest over the life of the loan, because that extra money goes entirely to principal and reduces the balance faster.

What happens to my amortization schedule if I refinance?

Refinancing creates a new loan with a new balance, interest rate, and term. Your old amortization schedule is no longer relevant. Your new lender will provide a new schedule based on the refinanced amount and terms. Any principal you paid down on the old loan stays paid down — you do not start over from the original amount.

How do I know if my lender calculated the interest correctly?

Check one month by hand using the formula: remaining balance × (annual rate ÷ 12) = interest for that month. Compare your result to what the lender shows. If they match within a few cents, the calculation is correct. If they differ by more than a dollar, contact your lender's servicer and ask them to explain the difference.