How Mortgage Interest Is Actually Calculated
Published · 3 min read · By The Samsung Calculator editorial team
Interest is charged on the balance, not the loan
Each month, the lender charges interest on whatever you currently owe. On a $300,000 loan at 6.5%, the first month's interest is 300,000 × 0.065 ÷ 12 = $1,625. Your payment is $1,896, so $271 goes to principal and the balance falls to $299,729.
Next month interest is charged on that slightly smaller balance, so slightly more of the same fixed payment reaches principal. Repeat 360 times. That single rule generates the entire amortization schedule, and nothing else is going on.
Where the payment formula comes from
M = P·i·(1+i)ⁿ ÷ ((1+i)ⁿ − 1), with i the monthly rate and n the number of payments. It is the solution to a single requirement: find the fixed payment whose present value, discounted at the loan rate, exactly equals the amount borrowed. The lender is indifferent between the lump sum today and the stream of payments, which is what makes it a fair price rather than an arbitrary one.
The crossover point
On a 30-year loan at 6.5%, the payment does not become majority-principal until around year 18. Over the full term you pay about $382,000 in interest on a $300,000 loan — more than the house cost.
On a 15-year loan at the same rate, the crossover happens in year 4 and total interest is about $170,000. The payment is 45% higher and the lifetime interest is 55% lower.
An extra $200 a month on the 30-year loan removes roughly six years and $95,000 of interest. The reason it does so much is that early principal reductions cancel every future interest charge that principal would have generated for the next three decades.
Three practical warnings
Tell the servicer where extra money goes. Many apply it to next month's payment by default, which advances your due date and saves nothing. Ask in writing for it to be applied to principal.
Check for prepayment penalties before making a habit of it. They are rare on US residential mortgages now but not extinct, and they are common elsewhere.
Compare against other uses of the money. Prepaying a 6.5% mortgage is a guaranteed, risk-free 6.5% return — excellent against a savings account, less obvious against employer-matched retirement contributions or high-interest debt.
Look at your own schedule
The amortization calculator prints every payment, so you can see exactly where the crossover lands on your loan and what an extra payment does to it.
Run your own numbers
Build a full amortization schedule showing interest, principal and remaining balance for every payment, month by month and year by year.
About this article
Written and reviewed by The Samsung Calculator editorial team. Every calculator is written against a published formula, reviewed against at least one independent reference implementation, and dated when it changes. Last updated July 22, 2026. Spotted an error? Tell us.