Worked derivation
What an extra payment does in year one versus year twenty
The same money, at two different moments, is not worth the same thing.
The whole finding
$5,000.00 in month 1 removes $30,332.98. The same $5,000.00 in month 241 removes $4,604.94.
One loan — $320,000.00 at 6.706% over 30 years, contractual payment $2,066.16. One amount. Paid once, at two different moments.
The early payment is worth 6.6 times the late one, and it removes 17 months against 4.
Why the early payment is worth more
Interest is charged on the balance, every month, for the whole of the remaining term. That single sentence contains the entire effect.
A dollar of principal retired in month 1 is a dollar that is not in the balance when any of the remaining 359 interest charges are calculated. The same dollar retired in month 241 escapes only 119 of them. The amount is identical; the number of charges it avoids is not.
So the value of an extra payment is not really about the payment. It is about how much of the term is left in front of it.
Where each payment actually goes
Before the extra payment, look at the ordinary one. Every month of this loan the borrower pays exactly $2,066.16, and every month it is divided differently.
| Month | Year | Interest | Principal | Interest share |
|---|---|---|---|---|
| 1 | 1 | $1,788.27 | $277.89 | 86.6% |
| 60 | 5 | $1,680.09 | $386.07 | 81.3% |
| 120 | 10 | $1,526.79 | $539.37 | 73.9% |
| 240 | 20 | $1,013.44 | $1,052.72 | 49.0% |
| 300 | 25 | $595.45 | $1,470.71 | 28.8% |
| 360 | 30 | $11.50 | $2,058.57 | 0.6% |
The first payment is 86.6% interest. Of $2,066.16 paid, $277.89 reduces what is owed. Nothing is being withheld and no fee is being taken — the split is simply what a large balance produces.
Across the whole of the first year, the balance falls by $3,439.16. Across the twentieth year it falls by $12,253.56, and across the thirtieth by $23,919.98 — for the same twelve payments of the same size.
The month it turns over
There is a specific month where more of the payment starts going to the principal than to the interest. On this loan it is month 237 — 19y 8m into a 30-year term.
Month 236: $1,036.65 interest against $1,029.51 principal — interest still wins.
Month 237: $1,030.90 interest against $1,035.26 principal — principal wins for the first time.
That is more than two-thirds of the way through the term. It is also not typed into this page: it is found by walking the schedule for the first month where principal exceeds interest, so it stays correct if the loan above ever changes.
The crossover depends on the rate and the term, not on how much was borrowed. A higher rate pushes it later; a shorter term pulls it earlier.
The same $5,000.00, at three moments
Now the extra payment. One lump sum, paid once, on top of that month's contractual payment, with everything else unchanged.
| Paid in | Interest removed | Months removed |
|---|---|---|
| Month 1 (year 1) | $30,332.98 | 17 |
| Month 121 (year 11) | $13,523.40 | 8 |
| Month 241 (year 21) | $4,604.94 | 4 |
Identical amount, identical loan, 6.6 times the interest removed. The late payment is not worthless — $4,604.94 and 4 months is a real result — but it is a different order of thing from $30,332.98.
The ordering here is not asserted in prose. The rows are produced by running the engine at each month, and a fixture sweeps six points across the term asserting that the saving only ever falls as the payment is made later.
A worked example you can check
Take the first month. The balance is $320,000.00 and the nominal annual rate is 6.706%, so the month's interest is the balance times the rate divided by twelve:
320,000 × 6.706% ÷ 12 = 1788.2667 → $1,788.27
Rounded half-up on the cent, which is where every figure on this site rounds. The contractual payment is $2,066.16, so the principal repaid that month is the difference: $277.89.
In a spreadsheet, =PMT(0.06706/12, 360, -320000) gives the payment and =IPMT(0.06706/12, 1, 360, -320000) gives the first month's interest. Change the second argument of IPMT to 240 and you have the year-twenty row of the table above. Our verification page walks through the same checks in more detail.
What this does not model
The schedule is a US fixed-rate loan with interest charged monthly at the nominal annual rate divided by twelve. That is what the mortgage calculator on this site computes, and it is the convention a US lender's note describes.
- Recasting. Some servicers respond to a large lump sum by recalculating the payment downward over the original term rather than shortening the term. That produces a different, smaller saving than the one above.
- Early repayment charges. Not modelled at all. A loan that charges for overpaying — common on UK fixed-rate deals — has to net that charge against these figures, and the answer can reverse.
- How the extra money is applied. The arithmetic assumes it reduces the principal in the month it is paid. Money held in suspense, or treated as the next scheduled payment made early, does not do this.
- Everything outside the loan. What else the money could have done, tax treatment, and whether a balance is worth clearing at all are not arithmetic questions and this page does not answer them.
Common questions
- Why does an extra payment early save so much more than the same payment later?
- Because interest is charged on the balance, every month, for the whole of the remaining term. A dollar of principal retired in month 1 is removed from 359 future interest charges; the same dollar retired in month 241 is removed from 119. The amount is identical and the number of charges it escapes is not. On $320,000.00 at 6.706%, $5,000.00 paid in month 1 removes $30,332.98 of interest and $5,000.00 paid in month 241 removes $4,604.94.
- Why is almost all of my early payment going to interest?
- Because the balance is at its largest at the start, and interest is charged on the balance. On this loan the first payment of $2,066.16 is $1,788.27 of interest and $277.89 of principal — 86.6% interest. Nothing is being withheld; the split is simply what the balance produces. It shifts month by month as the balance falls.
- When does more of the payment go to principal than to interest?
- On this loan, month 237 — 19y 8m in. That month is $1,030.90 of interest against $1,035.26 of principal. The month before it is still the other way round: $1,036.65 against $1,029.51. The crossover point depends on the rate and the term, not on the amount borrowed.
- Does it mean an extra payment later is pointless?
- No — it is worth less, not nothing. $5,000.00 in month 241 still removes $4,604.94 of interest and 4 months from this schedule. The page computes the difference so it can be seen; what to do about it depends on circumstances a calculator does not know.
- Will my servicer apply a lump sum to the principal?
- That depends on your servicer and how the payment is labelled. Extra money is only worth what this page computes if it reduces the principal, rather than sitting in suspense, being applied to future scheduled payments, or triggering a recast that lowers the payment instead of shortening the term. Ask how they apply it, and check the next statement.
- Does this apply to a UK mortgage?
- The mechanism does — interest charged on a balance is worth more to reduce early wherever the loan is. The arithmetic here does not transfer directly. This schedule uses the US monthly convention, interest at the nominal annual rate divided by twelve, and it models no early repayment charge. A UK loan with an ERC or a capped annual overpayment allowance is a different calculation and is not modelled here.
Sources
- CFPB — What is an amortization schedule? — retrieved 2026-08-12
- Every figure in the tables and the prose is produced at build time by the same engine the mortgage calculator runs, on $320,000.00 at 6.706% over 30 years. That loan's contractual payment of $2,066.16 matches calculator.net's published figure for the same inputs to the cent, which is the anchor every saving here is measured against.
Written and maintained by Vikash Singh. Last verified 2026-08-17.