How amortization shrinks the balance

Every month interest is charged on what is left, then the rest of the level payment reduces the balance.

The monthly step

Start with the balance. Multiply by the note rate divided by twelve. That is the interest for the month. Subtract it from the scheduled payment. What remains is principal, and the balance falls by that principal.

Next month the interest uses the new, smaller balance. The payment stays the same, so principal grows by the amount interest shrank. That is the whole mechanism.

The last payment

On the final month, principal is whatever balance is left, even if that is less than the usual principal slice. The payment that month is principal plus the last interest charge. The balance is then zero.

A zero rate is allowed. In that case there is no interest and the payment is the loan divided by the number of months.

What amortization is not

It is not a credit-card minimum that barely covers interest. The mortgage payment is sized to finish. If you only paid the interest, the balance would never fall, and this schedule would not be that payment.

The debt calculator is different. There, a minimum that does not cover interest never pays the balance off. The mortgage form does not let you type a payment below the amortizing amount.

This explains how WiseCalculator treats the numbers you type. It is not a lender’s offer and it is not advice for your loan.