📊 Amortization Calculator
Understand how your loan payments are split between principal and interest over time
📝 Loan Details
Payment Composition
Principal vs Interest
Amortization Schedule
| Year | Interest | Principal | Ending Balance |
|---|
ℹ️ About Amortization
What is Amortization?
Amortization refers to the process of paying off a debt over time through regular payments. Each payment is divided into two parts: one portion goes toward paying the interest on the loan, and the remaining portion reduces the principal balance.
In the early years of a loan, a larger portion of each payment goes toward interest. As the loan balance decreases, more of each payment is applied to the principal. This calculator helps you visualize how your payments are allocated between principal and interest over the life of your loan.
An amortization schedule is a complete table of periodic loan payments, showing the amount of principal and the amount of interest that comprises each payment until the loan is paid off at the end of its term.
Key Components:
- Payment Amount: The total amount paid each period (usually monthly)
- Interest Portion: The part of the payment that goes toward interest
- Principal Portion: The part that reduces your loan balance
- Remaining Balance: The outstanding loan amount after each payment
Amortization schedules are essential for understanding how much interest you'll pay over the life of the loan and how extra payments can reduce both your loan term and total interest paid.
Making extra payments toward your loan principal can significantly reduce both the total interest you pay and the length of your loan term.
Benefits of Extra Payments:
- Interest Savings: Reducing principal faster means less interest accrues over time
- Shorter Loan Term: You may pay off your loan years earlier
- Build Equity Faster: More of each payment goes toward principal sooner
Types of Extra Payments:
- One-Time Payments: A single lump sum payment (like a tax refund or bonus)
- Recurring Payments: Adding a fixed amount to each monthly payment
- Biweekly Payments: Making half-payments every two weeks (results in 13 full payments per year)
Most installment loans use amortization schedules. Common examples include:
Amortized Loans:
- Mortgages: Typically 15-30 year terms with fixed or adjustable rates
- Auto Loans: Usually 3-7 year terms with fixed rates
- Personal Loans: Often 1-7 year terms with fixed rates
- Student Loans: Typically 10-25 year repayment periods
Non-Amortized Loans:
- Interest-Only Loans: Payments cover only interest for a set period
- Balloon Loans: Small payments followed by a large final payment
- Credit Cards: Revolving credit with variable payments
Scenario: You take out a $200,000 loan at 6% interest for 15 years (180 months).
Monthly Payment Calculation:
The formula for calculating the fixed monthly payment (PMT) on a fully amortized loan is:
PMT = P × (r(1+r)^n) / ((1+r)^n - 1)
Where:
- P = Principal loan amount ($200,000)
- r = Monthly interest rate (6% annual = 0.5% monthly = 0.005)
- n = Number of payments (15 years × 12 months = 180)
Calculation:
PMT = 200,000 × (0.005(1+0.005)^180) / ((1+0.005)^180 - 1) = $1,687.71
First Payment Breakdown:
- Interest: $200,000 × 0.005 = $1,000
- Principal: $1,687.71 - $1,000 = $687.71
- New Balance: $200,000 - $687.71 = $199,312.29
As you can see, most of the early payments go toward interest rather than principal.
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