Real Estate

The Amortization Schedule

Why your early payments are almost all interest — and how to see it row by row.

Assumptions

Loan principal

$200,000

Annual rate

6%

Term

30 years (360 months)

Monthly payment

$1,199.10

Step by step

1. 1. 1 · The fixed payment

   Solve for the level payment that exactly retires the loan over $n$ periods at periodic rate $i$: $A=P\times \frac{i(1+i{)}^n}{(1+i{)}^n-1}$. Here $P=200000$, $i=0.06/12=0.005$, $n=360$, giving A \approx \1{,}199.10$ per month. This single number never changes.

2. 2. 2 · Split each payment

   Each month, interest is charged on the remaining balance: $\text{Interest}=B\times i$. Whatever is left of the fixed payment reduces principal: $\text{Principal}=A-\text{Interest}$. In month one, interest is 200000 \times 0.005 = \1000$,soonly$$199.10$ goes to principal.

3. 3. 3 · Watch the crossover

   As the balance falls, interest shrinks and principal grows — the same payment buys more of the asset each month. The 'crossover point', where principal first exceeds interest, arrives surprisingly late (around year 19 of a 30-year 6% loan). This is why total interest paid can approach the size of the loan itself.

Go deeper

• Document: The Commercial Lease →
• Problem Book: Real-Estate Valuation →