Amortization Calculator

What this calculator does

You borrow a lump of money, you pay it back in equal monthly instalments, and years later it is gone. Simple enough on the surface. What is not obvious is where each payment actually goes, how much of it is interest, and how much you hand over in total by the end. That is what amortization is, and that is what this tool lays bare.

Give it the loan amount, the annual interest rate, and the term in years. It gives you back your monthly payment, the total of all those payments, the total interest, and a year-by-year schedule showing how your balance melts down over time. Below is how it gets there and how to read what it shows you.

What amortization actually means

Here is the idea in one line: amortization is the process of paying off a loan with fixed payments, where each payment is split between interest and principal.

Your monthly payment stays the same the whole way through. What changes is what is inside it. Early on, your balance is large, so most of the payment is interest and only a little chips away at what you owe. As the balance shrinks, the interest portion shrinks with it, so more of each payment goes to principal. The split quietly tips over month after month, until near the end almost all of your payment is knocking down the balance itself.

So the payment is flat, but the job it is doing changes every single month. That is the whole trick, and it is why the first year and the last year of the same loan look nothing alike on paper.

The formula behind your monthly payment

The monthly payment comes from the standard amortizing loan formula:

M = P × [ i (1 + i)ⁿ ] ÷ [ (1 + i)ⁿ − 1 ]

Where:

• M is your monthly payment.
• P is the principal, the amount you borrow.
• i is the monthly interest rate, which is your annual rate divided by 12. So 6% a year becomes 0.06 ÷ 12 = 0.005.
• n is the total number of payments, which is your term in years times 12.

Once the payment is fixed, the calculator walks the loan month by month. Each month it works out the interest as your current balance times the monthly rate, treats the rest of the payment as principal, and subtracts that from the balance. Do that for every month and you get the full schedule.

A worked example: a $200,000 loan

Say you borrow 200,000 at 6% for 30 years. Let us run it.

The monthly rate is 0.06 ÷ 12 = 0.005, and the number of payments is 30 × 12 = 360. Feed those into the formula and the monthly payment comes out to $1,199.10.

Now here is the part worth sitting with. Over the full 360 payments you hand over $431,676.38 in total, of which $231,676.38 is interest. You borrowed 200,000 and paid back more than that again just in interest.

And look at where the money goes in year one. Of everything you pay that first year, about $11,933 is interest and only about $2,456 touches the principal. After twelve months of payments your balance has barely moved, from 200,000 down to roughly $197,544. That is not a mistake, that is amortization doing exactly what it does: interest first, principal later.

Reading the amortization schedule

The table the tool prints has one row per year, with four columns: the year, the interest paid that year, the principal paid that year, and the balance left at the end of it.

Read down the interest column and you will watch it fall every year. Read down the principal column and you will watch it rise. Somewhere in the middle of the loan the two cross over, and that crossover is the moment your payment finally starts doing more to shrink the debt than to service it. On our 200,000 loan the balance is still around $142,098 at the end of year 15, the halfway point in time. You are half way through the years but nowhere near half way through the balance, which surprises almost everyone the first time they see it.

By the final year the last column reaches zero, which is the whole point. The loan is paid off, exactly on schedule.

Why the total interest is bigger than people expect

The reason the interest total feels so heavy is that for the first several years you are paying interest on almost the entire balance. The longer the term, the longer that goes on, which is why a 30 year loan can cost so much more in interest than a 15 year one at the same rate, even though the monthly payment is smaller.

This is also where overpaying earns its keep. Any extra you put in goes straight to principal, and because it removes balance that would otherwise be charged interest for years, a little extra early can save a surprising amount over the life of the loan. This particular tool does not model extra payments, it shows the plain schedule, so if you want to test overpayments, our loan payoff calculator is built for that. For a home specifically, the mortgage amortization calculator covers the same ground with mortgage framing.

How to use this calculator

Three inputs:

• Loan Amount. The amount you are borrowing, in dollars. It has to be greater than zero.
• Interest Rate (Annual %). The yearly rate as a percentage, so enter 6, not 0.06. It needs to be above zero.
• Loan Term (Years). How long you have to repay, anywhere from just over zero up to 50 years, entered in whole years.

Press Calculate for your payment, your totals, and the schedule. Press Reset to clear the fields.

What this calculator assumes (and leaves out)

This tool shows you the clean skeleton of a loan. Real loans wear a bit more clothing, so keep these in mind.

• It is principal and interest only. For a mortgage, your actual monthly bill often also includes property taxes, homeowners insurance, and sometimes mortgage insurance, none of which are here. The CFPB has a good breakdown of the difference between your principal-and-interest payment and your full monthly payment.
• It assumes a fixed rate. The rate you enter is held steady for the whole term. If your loan adjusts over time, this is not the right model for it.
• It assumes no extra payments and no fees. Every payment is exactly the scheduled amount, nothing more, and origination fees or closing costs are not part of the picture.

So treat the output as a clean estimate for understanding and planning, not as a quote and not as financial advice. For a real loan, your lender's figures are the ones that bind.

Questions people ask

What does amortization mean in simple terms?

It means paying off a loan in equal instalments, where each payment covers the interest due first and puts whatever is left toward the principal. Over time the interest share falls and the principal share rises, until the balance reaches zero.

Why is so much of my early payment interest?

Because interest is charged on your outstanding balance, and early on that balance is at its largest. As you pay the balance down, the interest portion of each payment naturally shrinks and more goes to principal.

Does the monthly payment include taxes and insurance?

No. This calculator shows principal and interest only. A real mortgage payment often also includes property taxes and insurance, so your actual bill can be higher than the figure here.

How does a shorter term change things?

A shorter term raises your monthly payment but cuts the total interest sharply, because you are borrowing the money for fewer years. A longer term does the opposite: lower monthly payment, much more interest over the life of the loan.

References

The payment formula is the standard amortizing-loan equation from financial mathematics, set out in Broverman's text below. The point about principal and interest versus your full monthly housing payment follows the U.S. Consumer Financial Protection Bureau's mortgage guidance.

1. Consumer Financial Protection Bureau. Mortgages: tools and resources. https://www.consumerfinance.gov/consumer-tools/mortgages/
2. Broverman, S. A. Mathematics of Investment and Credit. ACTEX Publications.