Fixed rate mortgages are typically amortized over the life of the loan. The borrower makes constant payments each month over the life of the loan, which is structured so that the balance is reduced to zero with the last payment.

The monthly payment is based on the amount borrowed, the interest rate, and the life of the loan. Payments remain constant over the life of the loan and include amounts for both principle and interest. Interest is charged on the unpaid loan balance; the remaining payment is credited toward principle and serves to reduce the loan balance.

The amounts credited toward principle and interest vary each month, depending on the loan balance. In the early years of the loan, the amount required for interest is higher and less money is credited toward the principle. As the balance of the loan decreases, the amount charged for interest decreases and more of the payment is applied toward principle.

The monthly payment (principle and interest) for a 30 year, 6%, $100,000 loan is $599.55. The borrower makes 360 payments totaling $215,838.19. $100,000 dollars is applied to principle; $115,838.19 is charged to interest.
Compare this with a 15 year loan, where the monthly payment would be $843.86. While the monthly payment is higher, the total interest charged is $51,894.23, saving the borrower $63,943.96 over the life of the loan.

Charges for additional items are often included in a monthly mortgage payment. For example, for conventional loans with a loan to value (LTV) ratio greater than 80%, amounts for property taxes, hazard insurance, and possibly private mortgage insurance (PMI) may be required to be “placed in escrow”, increasing the monthly payment. These amounts are in addition to the required principle and interest payment and do not affect the amortizing of the loan.