Amortization Calculator

How the amortization calculator works

Amortization is the process of retiring a debt through a series of equal payments, each one covering the interest that has accrued since the last payment and putting whatever is left toward the principal. The size of that equal payment is not a guess — it is the one number that drives the balance to exactly zero on the final payment, and it comes from the annuity formula:

Once the payment is known, the schedule is built one row at a time rather than by formula. For each period the calculator charges interest on the balance that is actually outstanding — balance × r — subtracts that from the payment, applies the remainder to principal, and carries the new balance into the next row. This is the same period-by-period process a loan servicer runs, so each row's balance follows directly from the row above it rather than from a separate estimate.

Reading the schedule row by row

Three columns tell the whole story. The interest column is the rent you pay for the money you still owe this month. The principal column is the part of the payment that actually shrinks the debt. The balance column is what would be left if you stopped paying today. The payment column stays flat throughout, which is the point of amortization: the total does not move, only the mix inside it.

The yearly view groups those rows by calendar year so you can see the shape of the loan at a glance and match it to a tax year or a budget. The monthly view shows every individual payment with its date. Both are computed from the same underlying month-by-month math — the yearly table is a sum of the monthly rows, not a separate estimate — so the two views always agree.

Why the principal and interest split shifts over time

Interest is charged on the outstanding balance, and the balance is at its largest the day the loan funds. That first interest charge is therefore the biggest one the loan will ever produce, and because the payment is fixed, it crowds out principal. On a $250,000 loan at 8.5% for ten years, the first payment is roughly 57% interest. Every dollar of principal that gets through lowers the base for the next month's interest charge, so the next charge is slightly smaller and slightly more principal gets through. That feedback compounds quietly for years and then accelerates: by the final payments almost the entire amount is principal.

This front-loading is a consequence of arithmetic, not a fee or a penalty. It also means the interest paid so far is not proportional to the time elapsed — at the halfway point of the term, more than half of the total interest has already been charged. Two loans with identical payments can have very different balances at year five if their rates or terms differ.

What extra payments do to the schedule

An extra amount added to a payment goes entirely to principal, since the scheduled interest has already been covered. The required payment does not change; the balance simply drops faster than the original schedule assumed. Because interest is recalculated on the smaller balance each month, the extra dollar keeps working long after you paid it — it removes not only itself from the balance but the interest that would have accrued on it every remaining month.

The loan then terminates early. This calculator detects that, stops the schedule at the actual payoff month, and compares it to the untouched baseline to report the interest difference and the number of months removed. Extra payments made early in the term remove more interest than the same dollars applied late, because they have more remaining months to act on. Whether that trade-off is worth making depends on what else the money could do and on whether the loan agreement carries a prepayment penalty — the schedule shows the size of the effect, not whether the effect is a good idea.

Assumptions and limits

• Fixed rate. The rate is held constant for the whole term. A variable-rate loan re-amortizes at every reset, so a single schedule cannot describe it.
• Monthly compounding. Interest accrues once per period on the balance outstanding at the start of that period, before the payment is applied. Loans that accrue daily, or that use a different day-count convention, produce somewhat different figures. The gap grows with the balance and the rate.
• No fees. Origination fees, insurance, and escrow are excluded. To see the cost of financed fees, compare the rate against the APR.
• Payments on time. Late payments accrue additional interest that the schedule does not model.
• Rounding. Figures carry full precision internally and are rounded only for display, so a servicer's statement may differ by pennies, and the last payment is often a slightly different amount.