Amortization Calculator
Generate detailed loan amortization schedules and payment breakdowns. See how your loan payments are applied to principal and interest over time with interactive charts and tables.
Amortization Calculator
Generate detailed amortization schedules and see how your loan payments are applied over time
Understanding Loan Amortization
Quick Answer: Loan amortization is the process of gradually paying off a loan through regular payments. Each payment includes both principal (loan balance reduction) and interest, with early payments consisting mostly of interest.
An amortization schedule shows exactly how each payment is allocated between principal and interest over the entire loan term. This helps you understand the true cost of your loan and plan for early payoff strategies.
How Amortization Works
Understanding the mechanics of loan payments
Payment Allocation Formula
Monthly Interest: Remaining Balance × (Annual Rate ÷ 12)
Principal Payment: Total Payment - Interest Payment
New Balance: Previous Balance - Principal Payment
Early Loan Payments
- • Higher loan balance = more interest
- • Larger portion goes to interest
- • Smaller portion reduces principal
- • Balance decreases slowly
Later Loan Payments
- • Lower loan balance = less interest
- • Smaller portion goes to interest
- • Larger portion reduces principal
- • Balance decreases rapidly
Amortization Example
$300,000 loan at 6.5% for 30 years
| Payment # | Payment | Principal | Interest | Balance |
|---|---|---|---|---|
| 1 | $1,896.20 | $271.20 | $1,625.00 | $299,728.80 |
| 12 | $1,896.20 | $286.05 | $1,610.15 | $296,859.45 |
| 120 | $1,896.20 | $567.32 | $1,328.88 | $251,185.67 |
| 240 | $1,896.20 | $1,039.81 | $856.39 | $163,428.92 |
| 360 | $1,896.20 | $1,885.95 | $10.25 | $0.00 |
Notice how the principal portion increases and interest portion decreases over time, while the total payment remains constant.
Benefits of Extra Payments
How additional principal payments can save money
Extra $100/month
$77,674
Interest saved
Payoff 7.5 years early
Extra $200/month
$126,277
Interest saved
Payoff 11.5 years early
One extra payment/year
$67,816
Interest saved
Payoff 6 years early
*Based on $300,000 loan at 6.5% for 30 years. Extra payments go directly to principal.
Smart Amortization Strategies
Ways to optimize your loan payments
Accelerated Payoff Strategies
- • Bi-weekly payments: Make 26 payments instead of 12
- • Round up payments: Round to nearest $50 or $100
- • Annual bonus: Apply tax refunds to principal
- • Rate drops: Keep same payment when refinancing
- • Windfall payments: Apply inheritance or bonuses
When NOT to Pay Extra
- • High-interest debt exists (credit cards)
- • No emergency fund established
- • Missing employer 401k match
- • Very low interest rate (under 3%)
- • Better investment opportunities available
Frequently Asked Questions
Common questions about loan amortization
What is loan amortization?
Loan amortization is the process of paying off a debt over time through regular payments. Each payment includes both principal (reducing the loan balance) and interest. Early payments consist mostly of interest, while later payments include more principal as the loan balance decreases.
How is an amortization schedule calculated?
An amortization schedule is calculated using the loan amount, interest rate, and term. Each month's interest is calculated as the remaining balance multiplied by the monthly interest rate. The principal payment is the total payment minus the interest payment.
Why do early payments have more interest?
Early payments have more interest because interest is calculated on the remaining loan balance. Since the balance is highest at the beginning of the loan, more of each payment goes toward interest. As you pay down the principal, less interest accrues each month.
How do extra payments affect amortization?
Extra payments go directly toward the principal balance, reducing the amount of interest calculated on future payments. This can significantly shorten your loan term and save thousands in interest costs over the life of the loan.
What's the difference between amortization and a payment calculator?
A payment calculator tells you the monthly payment amount, while an amortization calculator shows the detailed breakdown of each payment over the entire loan term, including how much goes to principal vs. interest each month.
Can I use this for any type of loan?
Yes, this amortization calculator works for any fixed-rate installment loan including mortgages, auto loans, personal loans, and student loans. It doesn't apply to credit cards or variable-rate loans where payments can change.
How accurate are amortization schedules?
Amortization schedules are highly accurate for fixed-rate loans. However, actual payments may vary slightly due to rounding, payment timing, or loan servicing practices. Always refer to your lender's official schedule for exact amounts.
What happens if I miss a payment?
Missing a payment can disrupt your amortization schedule. You may face late fees, and the missed payment could be added to your balance with additional interest. Contact your lender immediately if you anticipate missing a payment to discuss options.
Understanding Your Amortization Schedule
Key Terms
- • Principal: The original loan amount
- • Interest: The cost of borrowing money
- • Balance: Amount still owed on the loan
- • Term: Length of time to repay the loan
- • Amortization: Gradual loan payoff process
Reading Your Schedule
- • Payment number shows which payment in sequence
- • Principal amount increases over time
- • Interest amount decreases over time
- • Balance decreases with each payment
- • Total payment remains constant (fixed-rate loans)
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