Amortization Calculator
Calculate loan payments and schedules
Amortization Calculator
Calculate monthly payments, total interest, and amortization schedules
Frequently Asked Questions
What is amortization?
Amortization is the process of paying off a loan through regular payments over time. Each payment consists of two parts: principal (the amount borrowed) and interest (the cost of borrowing). In the early years of a loan, a larger portion of each payment goes toward interest. As the loan matures, more of each payment goes toward the principal.
How is the monthly payment calculated?
The monthly payment is calculated using the amortization formula: M = P × [r(1+r)^n] / [(1+r)^n - 1], where M is the monthly payment, P is the principal loan amount, r is the monthly interest rate (annual rate divided by 12), and n is the total number of payments. This formula ensures equal monthly payments throughout the loan term.
What is an amortization schedule?
An amortization schedule is a table that shows each payment over the life of the loan, breaking down how much goes to principal, how much goes to interest, and the remaining balance after each payment. It helps you understand exactly how your loan will be paid off over time.
How do extra payments affect my loan?
Extra payments go directly toward reducing your principal balance, which means you pay less interest over the life of the loan and can pay off the loan faster. Even small additional payments can result in significant savings. For example, adding $100/month to a $200,000 loan at 6% for 30 years could save over $40,000 in interest.
What types of loans use amortization?
Most installment loans use amortization, including mortgages, auto loans, personal loans, student loans, and business loans. Credit cards and lines of credit typically do not use amortization because they are revolving debt with variable balances and payments.
Why does more interest get paid at the beginning of the loan?
Interest is calculated on the outstanding principal balance. At the start of a loan, the balance is highest, so more interest accrues. As you pay down the principal, less interest accumulates each month, which is why the interest portion of your payment decreases over time while the principal portion increases.
Pro Tips
- • Making one extra payment per year (or dividing your monthly payment by 12 and adding that amount to each payment) can shave years off your loan term.
- • Use the amortization schedule to identify the "crossover point" where your principal payments exceed interest payments - a milestone in your loan repayment.
- • When comparing loans, look at total interest paid, not just the monthly payment. A lower rate or shorter term can save thousands.
- • Consider bi-weekly payments instead of monthly. This results in 26 half-payments (13 full payments) per year instead of 12.
- • Apply windfalls like tax refunds or bonuses directly to your principal to accelerate payoff and reduce total interest.
- • If interest rates drop significantly, refinancing to a lower rate while maintaining the same payment amount can dramatically reduce your loan term.
Update Logs
View the latest updates and features
About This Calculator
Calculate loan amortization for:
- Mortgages
- Auto loans
- Personal loans
- Student loans
- Business loans
Features
Quick Tips
• Lower rates save significant interest
• Shorter terms mean higher payments but less interest
• Extra payments accelerate payoff dramatically
• Compare total interest, not just monthly payment
Frequently Asked Questions
What is amortization?
Amortization is the process of paying off a loan through regular payments over time. Each payment consists of two parts: principal (the amount borrowed) and interest (the cost of borrowing). In the early years of a loan, a larger portion of each payment goes toward interest. As the loan matures, more of each payment goes toward the principal.
How is the monthly payment calculated?
The monthly payment is calculated using the amortization formula: M = P × [r(1+r)^n] / [(1+r)^n - 1], where M is the monthly payment, P is the principal loan amount, r is the monthly interest rate (annual rate divided by 12), and n is the total number of payments. This formula ensures equal monthly payments throughout the loan term.
What is an amortization schedule?
An amortization schedule is a table that shows each payment over the life of the loan, breaking down how much goes to principal, how much goes to interest, and the remaining balance after each payment. It helps you understand exactly how your loan will be paid off over time.
How do extra payments affect my loan?
Extra payments go directly toward reducing your principal balance, which means you pay less interest over the life of the loan and can pay off the loan faster. Even small additional payments can result in significant savings. For example, adding $100/month to a $200,000 loan at 6% for 30 years could save over $40,000 in interest.
What types of loans use amortization?
Most installment loans use amortization, including mortgages, auto loans, personal loans, student loans, and business loans. Credit cards and lines of credit typically do not use amortization because they are revolving debt with variable balances and payments.
Why does more interest get paid at the beginning of the loan?
Interest is calculated on the outstanding principal balance. At the start of a loan, the balance is highest, so more interest accrues. As you pay down the principal, less interest accumulates each month, which is why the interest portion of your payment decreases over time while the principal portion increases.
Pro Tips
- • Making one extra payment per year (or dividing your monthly payment by 12 and adding that amount to each payment) can shave years off your loan term.
- • Use the amortization schedule to identify the "crossover point" where your principal payments exceed interest payments - a milestone in your loan repayment.
- • When comparing loans, look at total interest paid, not just the monthly payment. A lower rate or shorter term can save thousands.
- • Consider bi-weekly payments instead of monthly. This results in 26 half-payments (13 full payments) per year instead of 12.
- • Apply windfalls like tax refunds or bonuses directly to your principal to accelerate payoff and reduce total interest.
- • If interest rates drop significantly, refinancing to a lower rate while maintaining the same payment amount can dramatically reduce your loan term.
Update Logs
View the latest updates and features
Quick Tips
• Lower interest rates save significant money
• Extra payments reduce interest and loan term
• Compare total interest, not just monthly payment
• Use the annual schedule to track yearly progress