Amortization Calculator

How the calculation works

Each month, interest is charged on the remaining balance. Whatever is left of your fixed payment after covering that interest reduces the principal. Because the balance is largest at the start, early payments are mostly interest and barely dent the debt. As the balance falls, the interest charge falls with it, so a growing share of the same payment goes to principal — the split shifts steadily in your favour. Any extra payment bypasses interest entirely and reduces principal directly, which is why prepayment is so effective.

The formula

The level payment comes from M = P · [r(1+r)^n] / [(1+r)^n − 1], where P is the loan amount, r the monthly rate, and n the number of payments. The schedule is then built one row at a time: interest for the month is the current balance × r; principal is M minus that interest; the new balance is the old balance minus principal. Repeat until the balance reaches zero. Total interest is simply the sum of every interest row, or equivalently M × n − P.

Worked example

A $250,000 loan at 6.5% over 30 years carries a payment near $1,580. In month one, interest is $250,000 × 0.5417% ≈ $1,354, so only about $226 reduces the balance — roughly 14% of the payment. By year 20 that ratio has flipped and most of the payment is principal. Adding $300 a month from the start changes the arithmetic sharply: the extra goes entirely to principal, shrinking every future interest charge, and can shorten the loan by several years while saving tens of thousands in interest.

Tips

• Extra payments made early save far more than the same amount paid near the end.
• Confirm your servicer applies extra money to principal rather than prepaying next month's bill.
• Check for prepayment penalties before committing to an aggressive payoff plan.
• Use the schedule to find the crossover month where principal first exceeds interest.
• A single annual lump sum, such as a bonus, works nearly as well as spreading it monthly.

Common mistakes

• Reading the early schedule and assuming the loan is barely moving — the curve is exponential, not linear.
• Assuming a lower payment means a cheaper loan, when it usually means a longer, costlier one.
• Applying this schedule to a credit card, which does not amortize because the balance and payment both move.
• Refinancing repeatedly and resetting the clock to a fresh, interest-heavy first year.
• Ignoring that escrow makes the total bill larger than the amortizing payment shown here.

Limitations

The schedule assumes a fixed rate and consistent, on-time payments for the entire term. It does not model adjustable rates, origination fees, escrow, late charges, or the effect of refinancing partway through. Interest is calculated on a straightforward monthly basis; loans using daily accrual will differ slightly from these figures.