Loan Amortization Calculator
The loan amortization calculator computes your fixed monthly payment for any loan — mortgage, personal loan, or auto loan — and shows the total interest paid over the full loan term. Understanding amortization helps you evaluate refinancing opportunities and the true cost of borrowing.
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Formula
M = P × [r(1+r)^n] / [(1+r)^n − 1]
M is the monthly payment. P is the loan principal (amount borrowed). r is the monthly interest rate (annual rate ÷ 12, as a decimal). n is the total number of monthly payments (years × 12). The numerator is the monthly interest times the compounding factor; the denominator normalizes the payment so the loan reaches exactly zero at the end of term.
How to use the Loan Amortization Calculator
- 1
Enter your loan amount
Value should be in $.
- 2
Enter your annual interest rate
Value should be in %.
- 3
Enter your loan term
Value should be in years.
- 4
Read your results instantly
Results update in real time as you type.
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What is loan amortization?
Amortization is the process of paying off a loan through regular, fixed payments over a set period. Each payment covers both interest and principal, but the proportion changes over time. In the early years of a loan, the vast majority of each payment goes toward interest. As the balance decreases, more of each payment reduces principal — a shift called front-loaded amortization.
On a $200,000 mortgage at 6.5% for 30 years, your first payment of roughly $1,264 includes about $1,083 of interest and only $181 of principal. By year 25, the same payment is split nearly 50/50. By the final payment, nearly all of it is principal.
Understanding this dynamic explains why paying a little extra each month early in a loan's life has such a large impact — you eliminate principal that would have been charged interest for decades.
The true cost of a long-term loan
The total interest figure is often the most eye-opening number in this calculation. A $200,000 mortgage at 6.5% over 30 years costs about $255,000 in interest — more than the original loan amount. Extending the term from 15 to 30 years roughly triples the total interest paid, even though it's the same loan at the same rate.
This is the core trade-off: a longer term means lower monthly payments but dramatically higher total cost. A 15-year mortgage at 6.5% on $200,000 has a monthly payment of about $1,742 — $478 more per month than the 30-year — but saves approximately $148,000 in total interest.
For most borrowers, the right term depends on cash flow flexibility, other investment opportunities, and how long they plan to keep the loan. If you can earn more than 6.5% by investing the difference, a 30-year loan may be financially rational. If you value the security of debt elimination, a shorter term makes sense.
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Making extra principal payments
One of the most powerful ways to reduce total interest is to make additional principal payments. Because early payments are mostly interest, extra principal payments at the beginning of a loan eliminate years of future interest charges.
On a $200,000 30-year mortgage at 6.5%, paying an extra $200/month toward principal from day one shortens the loan by roughly 7 years and saves about $74,000 in interest. The earlier you start, the larger the effect — the same extra $200 applied starting in year 15 saves far less.
Before making extra payments, confirm your loan has no prepayment penalty (most modern mortgages don't), and specify that extra payments go toward principal, not future scheduled payments. Some servicers require explicit instruction to apply overpayments correctly.
Tips & Insights
Bi-weekly payments accelerate payoff
Instead of 12 monthly payments, switch to bi-weekly payments (half your monthly payment every two weeks). You end up making 26 half-payments per year — the equivalent of 13 monthly payments instead of 12. On a 30-year mortgage, this simple change typically shortens the loan by 4-6 years and saves tens of thousands in interest.
Refinancing makes sense when the rate drop is significant
A common rule of thumb is to refinance when you can reduce your rate by at least 1 percentage point and plan to stay in the home long enough to recoup closing costs (typically 2-5 years). Use this calculator to compare your current payment against a new rate — the monthly savings divided into closing costs gives you the break-even period in months.
PMI disappears at 20% equity
If you put less than 20% down, most lenders require private mortgage insurance (PMI), typically 0.5-1.5% of the loan amount annually. PMI is not reflected in this calculator but adds meaningfully to your monthly cost. Once you reach 20% equity — either through payments or appreciation — you can request PMI cancellation and reduce your effective monthly payment.
Worked Examples
30-year mortgage on a starter home
A $250,000 mortgage at 7% for 30 years requires a monthly payment of approximately $1,663. Over 30 years, you'll pay about $598,772 total — meaning $348,772 goes to interest, nearly 1.4 times the original loan amount.
15-year vs. 30-year comparison
A $300,000 loan at 6.5% over 15 years has a monthly payment of $2,613 and total interest of about $170,000. The same loan over 30 years drops the payment to $1,896 but costs $382,000 in total interest — over $212,000 more.
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Frequently Asked Questions
What is an amortization schedule?
An amortization schedule is a complete table of every loan payment, showing how much goes to interest and how much reduces principal for each payment over the life of the loan. It reveals how the interest-to-principal ratio shifts over time and is useful for tracking payoff progress or calculating remaining balance at any point in the loan.
Why do I pay so much interest at the beginning of a loan?
Interest is calculated on the outstanding balance. Early in the loan, your balance is nearly the full principal, so the interest charge is at its highest. As you pay down principal, the interest charge on each subsequent payment decreases. This is how all standard amortizing loans work — it's not a lender trick, just the math of interest on a declining balance.
Does a lower interest rate always mean a lower total cost?
A lower rate reduces both your monthly payment and total interest paid, assuming the same term. However, if a lower-rate loan comes with a longer term or higher closing costs, the total cost could actually be higher. Always compare the total interest paid over the full term, not just the monthly payment or the rate alone.
What is the difference between APR and interest rate?
The interest rate is the annual cost of borrowing expressed as a percentage of the loan balance. APR (Annual Percentage Rate) includes the interest rate plus other costs like origination fees, discount points, and mortgage broker fees, expressed as an annualized rate. APR gives a more complete picture of the true cost of a loan, especially when comparing offers from different lenders.
How does paying extra affect my loan?
Extra principal payments directly reduce the balance on which future interest is calculated, shortening the loan term and reducing total interest. The key is ensuring extra payments are applied to principal, not held as prepaid future payments. Even modest extra payments of $50-$100/month on a large mortgage can shave years off the loan term and save thousands in interest.
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