Amortization Calculator

How to Use This Amortization Calculator

1. Enter the total loan amount you are borrowing.

2. Input the annual interest rate as a percentage.

3. Set the loan term in years (e.g., 30 for a 30-year mortgage).

4. Optionally add an extra monthly payment to see how it affects payoff.

5. Select your loan start date to see projected payment dates.

6. Click "Generate Schedule" to view your complete amortization table.

What is Amortization?

Amortization is the process of spreading loan repayment over time through a series of fixed, regular payments. Each payment is divided between two components: principal (the original amount borrowed) and interest (the cost of borrowing money). The term comes from the Latin word "amortire," meaning to kill or extinguish, because each payment gradually extinguishes the debt until it reaches zero.

In the early years of an amortized loan, the majority of each payment goes toward interest because the outstanding balance is at its highest. As you continue making payments and the principal balance decreases, less interest accrues each month. This means more of your payment goes toward reducing the principal. By the final years of the loan, nearly all of each payment goes toward principal with very little going to interest.

An amortization schedule is a detailed table showing every payment over the life of the loan. It breaks down each payment into its principal and interest components and shows your remaining balance after each payment. This schedule is invaluable for understanding exactly where your money goes and how quickly you are building equity in your financed asset.

Benefits of Understanding Your Amortization Schedule

Reviewing your amortization schedule helps you make informed financial decisions. You can see how much total interest you will pay over the life of the loan, which is often surprising to borrowers. For a 30-year mortgage, the total interest paid can exceed the original loan amount. Understanding this motivates many borrowers to make extra payments or choose shorter loan terms.

The schedule also reveals the power of extra payments. Even small additional payments toward principal can dramatically reduce your total interest and shorten your loan term. For example, adding just $100 per month to a $250,000 mortgage at 6.5% can save over $50,000 in interest and pay off the loan nearly 5 years early. Use the extra payment feature in this calculator to see exactly how additional payments affect your specific loan.

Types of Amortizing Loans

Most consumer loans use amortization, including mortgages, auto loans, personal loans, and student loans. These are called installment loans because you repay them in regular installments over a fixed period. The predictable payment schedule makes budgeting easier and ensures the loan is fully paid off by the end of the term.

Some loans do not fully amortize. Interest-only loans require payments that cover only the interest for a period, with the principal due later. Balloon loans have small payments with a large lump sum due at the end. Negative amortization occurs when payments do not cover the interest due, causing the balance to grow. These non-traditional loan structures carry more risk and are less common for consumer lending.

Amortization Formula

Monthly Payment: M = P[r(1+r)^n]/[(1+r)^n-1]

M = Monthly payment amount

P = Principal (loan amount)

r = Monthly interest rate (annual rate / 12)

n = Total number of payments (years x 12)

For each payment, the interest portion equals the remaining balance multiplied by the monthly rate. The principal portion is the total payment minus the interest. The new balance equals the previous balance minus the principal paid. This process repeats for every payment until the balance reaches zero.