- The payment is fixed, but the split inside it moves every month — the first payment is the most interest-heavy one you will ever make.
- Principal does not overtake interest until roughly halfway through a long amortization, and half the balance is repaid later still.
- Total interest is driven far more by the length of the amortization than by a fraction of a point on the rate.
- Anything you pay above the scheduled payment goes entirely to principal, which is why prepayments compound so hard early on.
How an amortization schedule works
An amortization schedule is the mortgage payment taken apart. The payment itself never changes: it is solved once, from the balance, the rate and the number of periods, so that the last payment lands the balance exactly on zero. What changes every single month is what that fixed amount buys.
Interest is charged on the balance still outstanding, so the first payment carries the largest interest charge the loan will ever have. Whatever is left over after the interest is covered reduces the principal. That smaller balance is charged less interest next month, which leaves more of the same payment for principal, which shrinks the balance faster — a slow acceleration that runs for the whole amortization.
That is why the two milestones on this page matter more than the payment does. The crossover month — the first month where more of your payment goes to principal than to interest — arrives far later than most borrowers assume, and the month you have repaid half the loan arrives later still, well past the halfway point in time.
The math
The payment comes from the standard level-payment formula: P = L · r · (1 + r)ⁿ ÷ ((1 + r)ⁿ − 1), where L is the loan amount, r is the annual rate divided by 12, and n is the number of monthly periods.
The schedule is then built by simulation rather than by formula. For each period the interest charge is balance × r; the principal portion is the payment minus that charge; the balance for the next period is the current balance minus the principal portion. The yearly view is the monthly rows summed twelve at a time, with the year-end balance taken from the twelfth row rather than recomputed, so the two views cannot disagree.
The last period absorbs any rounding drift so the balance ends at exactly zero — that is what a real final statement does. A schedule that carries a few cents into its last row is the tell of one built by repeatedly subtracting an already-rounded payment. Canadian fixed-rate mortgages are conventionally compounded semi-annually rather than monthly, which makes the effective rate a shade lower than the same nominal rate compounded monthly; this schedule uses monthly compounding, so read the payment as a close estimate rather than a quote.
Worked example
A $450,000 balance at 5.5% amortized over 25 years is a payment of about $2,763 a month. Over the full amortization that is $829,018 paid, of which $379,018 is interest — 84 cents of interest for every dollar borrowed.
The first twelve payments total roughly $33,161, and $24,535 of that is interest: the balance falls by only $8,626 in the entire first year. Principal does not overtake interest until month 150, twelve and a half years in, and the balance does not reach half the original loan until month 198 — sixteen and a half years into a twenty-five-year schedule. Shorten the amortization to twenty years and the payment rises to about $3,095, but total interest falls to $292,918: $332 more a month buying back $86,100.
Key terms
- Amortization period
- The total time the schedule takes to reach a zero balance at the current payment. In Canada this is not the same thing as the term, which is how long your rate is contracted for.
- Level payment
- A payment solved so that the balance reaches exactly zero on the final period. It stays constant while the split between principal and interest inside it does not.
- Crossover point
- The first period in which more of the payment goes to principal than to interest. On a long amortization it lands around the halfway mark, not near the start.
- Outstanding balance
- The principal still owed at the end of a period — the figure the next period’s interest is charged on, and the figure a lender uses to price a renewal or a refinance.