What is loan amortization?
Amortization is paying off a loan with equal payments on a fixed schedule. Every payment covers the interest that built up since the last one, and the rest reduces the balance. Because interest is charged on what you still owe, early payments are mostly interest and later payments are mostly principal. An amortization schedule is the table that lists that split for each payment.
How this amortization calculator works
The loan amortization calculator assumes a fixed interest rate, monthly payments and monthly compounding. The payment comes from the standard formula, where P is the loan amount, r is the monthly rate (annual rate ÷ 12) and n is the number of monthly payments:
Monthly payment = P × r ÷ (1 − (1 + r)−n)
The amortization schedule then repeats three steps each month:
- Interest = balance at the start of the month × r
- Principal = monthly payment − interest
- Ending balance = starting balance − principal
For a $300,000 loan at 6.5% over 30 years, the payment is $1,896.20. The first payment is $1,625.00 of interest and $271.20 of principal. Over 360 payments the loan costs $682,633.47, of which $382,633.47 is interest. Switch the schedule between annual and monthly views to see totals per year or every payment.
Amortization schedule with extra payments
Turn on extra payments to add a recurring monthly amount, a yearly amount, or up to 11 one-time payments. Each extra payment goes straight to principal in the month it is made, which lowers the interest charged in every month after it and shortens the loan. The scheduled monthly payment stays the same.
A monthly extra applies from its start month onward. A yearly extra applies in its start month and every 12 months after. The results show the new payoff time, the total of extra payments and the interest saved compared with the original schedule. The total of monthly payments counts the scheduled payments only.
Frequently asked questions
Why is so much of my early payment interest?
Interest is charged on the outstanding balance, and the balance is highest at the start. As the balance falls, less of each payment is needed for interest and more goes to principal.
Can I use this for a mortgage, auto loan or personal loan?
Yes, for any fixed-rate loan repaid in equal monthly payments. The schedule covers principal and interest only, so it leaves out property tax, insurance, PMI and fees.
What do the dates in the schedule mean?
When extra payments are on, each row is labeled with a month counted from the loan start date, and the payoff date is the month after the final row. A one-time payment dated before the loan starts or after it is paid off is ignored.
Does a longer term cost more?
A longer term lowers the monthly payment but raises total interest, because the balance stays higher for longer.
Limitations
Results are estimates. Lenders may round each payment to the cent, count interest by the day, or charge prepayment penalties, so your statement can differ slightly. Adjustable-rate, interest-only and balloon loans do not follow this schedule.
What's changed
- Launched.
References
- Consumer Financial Protection Bureau, What is amortization and how could it affect my auto loan?
how each payment is split between interest and principal