Amortization Calculator

Amortization is the process of retiring a loan through equal, periodic payments, where each payment covers the interest charged since the last one plus a slice of principal. Mortgages, most auto loans, and most student loans work this way.

Because interest is computed on the remaining balance, the split between interest and principal shifts over the life of the loan. Early payments lean heavily toward interest; late ones almost entirely toward principal. The payment amount stays constant.

Enter the loan amount (principal), annual interest rate, and term in years. The Amortization Calculator returns the fixed monthly payment, total interest paid over the life of the loan, and the grand total of payments. Pair the result with the schedule to see how the interest/principal split changes month by month.

M = P × r × (1 + r)^n / ((1 + r)^n − 1)

M = monthly payment
P = principal (loan amount)
r = monthly interest rate (APR / 12)
n = total number of monthly payments (years × 12)

Worked example: a $300,000 mortgage, 6% APR, 30 years.

P = 300,000
r = 0.06 / 12 = 0.005
n = 30 × 12 = 360

M = 300000 × 0.005 × (1.005)^360 / ((1.005)^360 − 1)
  ≈ 300000 × 0.005 × 6.0226 / 5.0226
  ≈ $1,798.65 per month

Total paid   = 1798.65 × 360 ≈ $647,515
Interest     = $647,515 − $300,000 ≈ $347,515

Over the life of the loan, interest exceeds the original principal. This is typical for 30-year mortgages at mid-range rates.

Each row of the schedule represents one payment:

interest_paid   = outstanding_balance × r
principal_paid  = M − interest_paid
new_balance     = outstanding_balance − principal_paid

At month 1 on the mortgage above:

interest_paid   = 300,000 × 0.005      = $1,500.00
principal_paid  = 1,798.65 − 1,500.00  = $298.65
new_balance     = 300,000 − 298.65     = $299,701.35

Compare to month 360 (the last payment), when almost all of $1,798.65 goes to principal and only a few dollars to interest.

Extra principal payments reduce the outstanding balance immediately, which cuts the interest charged in every future month. The effect is front-loaded — a dollar applied in year 1 saves far more than a dollar applied in year 25.

Numbers above are for the $300k, 6%, 30-year example. Even a modest extra amount each month shortens the term meaningfully and lops tens of thousands off lifetime interest.

Instead of 12 monthly payments per year, pay half the amount every two weeks. There are 26 half-payments in a year, which is 13 full monthly payments — one extra per year, split invisibly across the calendar.

half_payment = monthly_payment / 2

# $300k, 6%, 30-yr biweekly:
$899.33 every two weeks
= $23,382 per year
= 13 monthly payments of $1,798.65

Effect: loan paid off in ~25 years instead of 30.

Confirm your servicer applies biweekly paymentsas received — not by holding the half-payment and combining it at month end, which produces the same total but skips the interest savings.

Refinancing resets the amortization schedule at a new rate and (usually) new term. It makes sense when:

• The new rate is at least ~0.75 pp lower than the current one.
• You plan to hold the loan long enough to recoup closing costs.
• Your credit, income, or home value has improved materially.

Break-even test: break_even_months = closing_costs / monthly_savings. If you will keep the loan longer than that, refinance pays off; otherwise the costs eat the benefit.

What is an amortization schedule?

An amortization schedule is a table showing each loan payment broken into interest and principal, along with the remaining balance after each payment. The payment amount stays constant, but early payments are mostly interest while later payments are mostly principal — so the balance falls slowly at first and faster toward the end.

How is the monthly payment calculated?

For a fixed-rate amortizing loan, payment M = P × r × (1 + r)^n / ((1 + r)^n − 1), where P is the principal, r is the monthly interest rate (annual rate ÷ 12), and n is the total number of monthly payments. This is the same formula banks use for mortgages and installment loans.

Why is so much of my early payment going to interest?

Interest each month is calculated on the outstanding balance, which is highest at the start of the loan. On a 30-year mortgage at 6%, roughly 80% of the first payment is interest. By month 180 (year 15) the split is about 50/50, and by the last year almost all of the payment is principal.

How much do I save by making extra principal payments?

Extra principal reduces the balance immediately, which cuts the interest charged in every subsequent month. One extra payment per year on a 30-year mortgage typically shortens the term by 4–6 years and can save tens of thousands in interest. The savings grow non-linearly — the earlier in the loan you pay extra, the bigger the effect.

What is the difference between amortization and interest-only loans?

An amortizing loan retires both principal and interest on a fixed schedule — when the last payment clears, you owe nothing. An interest-only loan only pays interest for a period, leaving the full principal to be repaid later either through amortization, a balloon payment, or refinancing.

Does amortization work the same for mortgages, auto loans, and student loans?

Mathematically, yes — the same formula applies to any fixed-rate installment loan. Practical differences are in terms (15–30 years for mortgages, 3–7 for autos, 10–25 for student loans), prepayment penalties (more common on mortgages), and whether interest capitalizes (common on student loans in deferment).

How do I pay off a loan faster?

Three main levers: (1) pay extra toward principal whenever possible, (2) switch to biweekly payments (26 half-payments = 13 full payments per year), or (3) refinance to a shorter term or lower rate. Combining methods compounds the benefit. Always confirm extra payments are applied to principal, not prepaid interest.