Loan Amortization Calculator

Loan Amortization Calculator

A loan amortization calculator shows how your loan payments are split between principal and interest over time. Understanding amortization helps you see how much interest you'll pay, how quickly you build equity, and the impact of extra payments.

How Loan Amortization Works

Each loan payment has two parts:

• Interest: Calculated on remaining loan balance
• Principal: The rest of the payment that reduces your loan balance

Early in the loan, most of your payment goes to interest. As the balance decreases, more goes to principal.

Amortization Example

$200,000 Loan, 6% Interest, 30 Years

Month 1:

• Payment: $1,199.10
• Interest: $1,000.00 (on $200,000 balance)
• Principal: $199.10
• New Balance: $199,800.90

Month 180 (15 years):

• Payment: $1,199.10
• Interest: $500.00 (on lower balance)
• Principal: $699.10
• New Balance: $139,200.00

Month 360 (Final payment):

• Payment: $1,199.10
• Interest: $5.95 (on small balance)
• Principal: $1,193.15
• New Balance: $0

Key Insights from Amortization

Interest-Heavy Early Payments

In the first few years, most of your payment goes to interest. For a 30-year mortgage, you might pay mostly interest for the first 5-10 years.

Principal Acceleration

As you pay down the loan, the principal portion grows. Later payments build equity much faster.

Total Interest Cost

Amortization shows total interest paid over the loan life. On a $200,000 loan at 6% for 30 years, you'll pay $231,676 in interest - more than the original loan!

How to Reduce Total Interest

Make Extra Payments

Extra payments go directly to principal, reducing balance faster and saving interest. Even small extra payments can save thousands.

Shorter Loan Term

15-year loans have higher monthly payments but much less total interest. You pay off the loan faster and save significantly.

Refinance to Lower Rate

If rates drop, refinancing can reduce your interest rate and total interest paid. Consider closing costs vs. savings.

Amortization Schedule Uses

• Tax planning: See deductible interest amounts
• Equity tracking: Know how much equity you've built
• Refinance decisions: See remaining balance and interest
• Extra payment planning: Understand impact of additional payments
• Loan comparison: Compare total costs of different loans

Understanding Your Schedule

Payment Amount

Stays constant throughout the loan (for fixed-rate loans). Only the split between principal and interest changes.

Principal Portion

Starts small, grows over time. This is the part that builds equity and reduces your loan balance.

Interest Portion

Starts large, decreases over time. This is the cost of borrowing money.

Remaining Balance

Decreases slowly at first, then faster as more goes to principal. This is what you still owe.

Extra Payment Impact

Making extra payments can significantly reduce total interest:

• $100 extra/month: On $200k loan at 6%, saves ~$30,000 interest, pays off 4 years early
• $200 extra/month: Saves ~$55,000 interest, pays off 7 years early
• One extra payment/year: Saves ~$20,000 interest, pays off 2-3 years early

Fixed vs. Adjustable Rate

Fixed-Rate Loans

Payment stays constant. Amortization schedule is predictable. Interest and principal portions change, but total payment doesn't.

Adjustable-Rate Loans (ARM)

Payment can change when rate adjusts. Amortization schedule recalculates. More complex to track.

Loan Types and Amortization

Mortgages

Standard amortizing loans. 15-year and 30-year are most common. Payment includes principal and interest.

Auto Loans

Typically 3-7 year terms. Similar amortization structure. Shorter term = less total interest.

Personal Loans

Usually 2-7 years. Fixed payments with amortization schedule.

Tips for Using Amortization

1. Review regularly: Check your progress and remaining balance
2. Plan extra payments: See impact before making them
3. Track equity: Know how much you've paid down
4. Tax planning: Use for interest deduction calculations
5. Refinance timing: Know when it makes sense to refinance