Amortization Calculator

Estimate your monthly loan payments and see a complete breakdown of principal and interest over time.

Enter Loan Details

Loan Amount ($)

The principal amount you’re borrowing.

Annual Interest Rate (%)

The yearly interest rate on your loan (e.g., 5%).

Loan Term (years)

How long you have to pay off the loan (in years).

Monthly Payment

$0.00

Principal + interest per month.

Total Interest Paid

$0.00

Overall interest over the loan’s life.

Total Cost of Loan

$0.00

Principal + total interest.

Amortization Schedule

Each row shows the monthly payment, how much goes to interest vs. principal, and the remaining balance.

Payment #	Payment	Interest	Principal	Remaining Balance

Amortization Calculator (In-Depth Explanation)

Amortization Calculator

An Amortization Calculator helps you estimate monthly loan payments (e.g., mortgage, car loan, student loan) and see exactly how each payment is split between principal and interest over time. By understanding amortization, you can plan your budget, compare different loan offers, and make informed financial decisions.

What is Amortization?

Amortization is the process of paying down a loan through scheduled payments over a set period. Each payment partially pays down the principal and also covers the interest. Early in the loan, a bigger portion of each payment goes to interest; as time goes on, more of the payment applies to the principal.

A typical amortization schedule specifies, for each payment:

Payment amount
Principal portion
Interest portion
Outstanding balance after the payment

Key Inputs for Amortization

Most Amortization Calculators require:

Loan Amount (Principal): The amount borrowed initially.
Annual Interest Rate: e.g., 6% per year. This is often a nominal rate, not necessarily an APR with fees included.
Term (Length): How many years (or months) to fully repay the loan.
Payment Frequency (often monthly): Some loans might be weekly or bi-weekly, though monthly is most common.

The Standard Payment Formula

For a fixed-rate, fully-amortizing loan, the monthly payment $M$ can be calculated by:

\[ M = P \times \frac{i(1 + i)^n}{(1 + i)^n - 1} \]

$P$: Principal (loan amount)
$i$: Periodic interest rate (annual nominal rate divided by 12 for monthly payments)
$n$: Number of payment periods (months, if monthly payments) over the entire term

After calculating $M$, the calculator generates an amortization schedule, showing each payment’s breakdown.

How an Amortization Calculator Works

When you input the loan terms:

Computes Monthly Payment: Using the above formula, it determines the consistent monthly payment amount $M$.
Builds Amortization Table: For each month:
- Calculates interest for that month = previous balance × $i$.
- Determines the principal portion = (monthly payment) - (interest portion).
- Updates the remaining balance = (previous balance) - (principal portion).
Outputs Schedule & Summaries: See how total interest accumulates, final payoff date, etc.

Detailed Example

Example: $200,000 Mortgage at 6% over 30 Years

Inputs:

Principal, $P = \$200{,}000$
Annual interest rate = 6% $\rightarrow i = 0.06/12 = 0.005$ monthly
Term = 30 years $\rightarrow n = 30 \times 12 = 360$ months

Monthly Payment Calculation:

\[ M = 200{,}000 \times \frac{0.005 (1 + 0.005)^{360}}{(1 + 0.005)^{360} - 1} \]

Numerically, $(1.005)^{360} \approx 6.022575$. So:

\[ \text{numerator} = 0.005 \times 6.022575 = 0.0301129, \quad \text{denominator} = 6.022575 - 1 = 5.022575, \quad \frac{\text{numerator}}{\text{denominator}} \approx 0.005996. \] \[ M \approx 200{,}000 \times 0.005996 = 1199.2 \,\text{dollars/month}. \]

So the monthly payment is roughly \$1,199.20. The amortization schedule then details how each payment’s portion goes to interest vs. principal. Early on, interest is high, principal payoff is small; by the final payments, most of the \$1,199.20 goes to principal.

Why Use an Amortization Calculator?

Budgeting and Planning: Know how much your monthly payment will be and how long it takes to pay off.
Comparing Loan Options: Adjust rates and terms to see the effect on monthly payments and total interest paid.
Early Payoff Strategies: Evaluate how extra payments on principal might reduce total interest or shorten the term.
Transparency: See exactly how each payment is allocated.

Key Takeaways

Fixed Payment: Most amortized loans have a constant monthly payment (in fixed-rate scenarios).
Interest vs. Principal: Over time, the interest portion decreases, and principal repayment accelerates.
Total Interest: Summing all interest portions across the schedule reveals the true cost of borrowing.
Loan Options: Different rates or terms drastically affect monthly affordability and total cost.

Conclusion

An Amortization Calculator is invaluable for anyone taking out or comparing loans. By showing monthly payments and providing a full schedule of interest and principal allocation, it offers a transparent look at how debt is paid down. This clarity empowers better financial decisions, whether for a mortgage, auto financing, or any other installment loan scenario.