The amortization formula
For a loan principal P, monthly rate i (annual rate ÷ 12), and n total months:
Monthly payment = P × i × (1+i)n ÷ [(1+i)n − 1]
Each payment splits between interest (on the remaining balance) and principal. In the early years of a 30-year mortgage, ~70% of each payment goes to interest. The principal share grows over time as the balance shrinks.
Why extra principal payments are so powerful
An extra $200/month on a $400,000 mortgage at 6.75% saves roughly $135,000 in interest and shortens the loan by about 7 years. The reason: every dollar of extra principal eliminates years of compounded interest on that dollar. Run the numbers above to see the exact savings for your situation.
What this calculator doesn't include
- Property taxes and homeowner's insurance (often escrowed into your payment)
- PMI (private mortgage insurance, required below 20% down)
- HOA fees
- Closing costs and origination fees
- Adjustable-rate features (ARM resets)
A full PITI (principal, interest, taxes, insurance) payment can be 25-40% higher than the principal+interest number alone — budget accordingly.