Amortization Calculator

Amortization is an accounting technique that’s used for several different purposes. Most of us encounter the term when we take out a home mortgage or other loan.

Amortization, in that case, shows how much of each loan payment goes toward paying off principaland how much goes toward interest and the remaining balance on the loan at any given time. If you have a mortgage or similar loan, our amortization calculator will tell you how each of your monthly payments breaks down—and how close you are to paying off the loan completely.

Estimate Your Monthly Amortization Payment

Traditional, fixed-rate mortgages and other self-amortizing loans are structured so that you make equal payments each month (or other period) until you have paid off everything you owe. While your payments never change, the portion that goes toward interest and the portion that goes toward your loan’s principal will change each month. At first, the bulk of each payment will go toward interest, with a small amount applied toward the principal.

As you continue to pay down the loan, those principal payments will begin to add up. So, each time your outstanding principal is multiplied by the interest rate on your loan, your interest payment will decline a bit.

Since you’re still paying the same amount overall, more of each payment will now go toward the principal, continuing to reduce the interest portion of your payment. Eventually, the bulk of your payment will go toward the principal and smaller amounts toward interest. And ultimately, your loan principal and the loan itself will be completely paid off.

Using the amortization calculator above will show you how this works for your specific loan.

Amortization Calculator Results Explained

The amortization calculator needs just three pieces of information from you:

• Your loan amount
• The term (or length) of the loan, in years or months
• The annual interest rate on your loan

Suppose you’re borrowing $300,000 on a 30-year mortgage at a fixed interest rate of 7%. Plugging those numbers into the amortization calculator will tell you a number of things.

For example, your monthly payment will be $1,995.91.

Of your first $1,995.91 payment, $1,750 will go to interest and just $245.91 to principal. Your second payment will represent $1,748.57 interest and $247.34 principal. And so on until the loan has been paid off after 30 years and 360 payments.

The calculator will also tell you that you’ll have paid $718,527 when all is said and done—the original $300,000 you borrowed plus $418,527 in interest.

What Is an Amortization Schedule? 

Our amortization calculator also produces an amortization schedule, which lists each payment on your loan, divided into principal and interest, as well as the total amount you still owe as of that point.

How Can You Calculate an Amortization Schedule on Your Own?

If, for some reason, you wanted to create your own amortization schedule, you can do so with a spreadsheet program like Microsoft Excel.

You’d start by calculating your monthly payment (if you don’t already know it), using Excel’s PMT function. Following our example above, for a loan with a 7% interest rate, 12 payments a year, 360 payments in total, and an initial balance of $300,000, you’d enter =PMT(7%/12,360,300000). The result will be $1,995.91.

Next, you could calculate how each payment breaks down in terms of principal and interest using this formula:

Total Monthly Payment – [Outstanding Loan Balance × (Interest Rate/12)] = Monthly Interest Payment

In this example, that would be $1,995.91 – [$300,000 x (7%/12)] = $1,750 for the first month’s payment.

Since your total payment is $1,995.91 and your interest payment is $1,750, your principal payment for that month would be $245.91.

Because you’ve now reduced your outstanding loan balance by $245.91, the formula for the second month would be $1,995.91 – [$299,754.09 x (7%/12)] = $1,748.57.

Then, continue this process for the rest of your 360 payments.

How to Calculate Amortization with an Extra Payment

One way to pay your loan off faster and to reduce the amount of interest you’ll pay over the life of the loan is to make additional payments when you’re able to and instruct your lender to apply them to principal.

Following the example above, suppose that instead of $1,995.91, you kicked in an additional $50 each month. In month one, you’d still pay $1,750 in interest, but your principal payment would now be $295.91. In month two, rather than paying interest on an outstanding balance of $299,754.09, you’d pay it on a balance of $299,704.09.

While the savings would be small at first, they would multiply over time. In this case you’d finish paying off your loan 27 months sooner and save yourself $38,400 in total interest in the bargain.

Mortgage Amortization Isn’t the Only Kind

In addition to fixed-rate home mortgages, other kinds of loans that amortize can include: auto loans, home equity loans, student loans, and personal loans. What they have in common is regular fixed payments and a fixed end date.

Not every loan amortizes, however. Non-amortizing loans include interest-only loans, which don’t reduce the principal you owe, and balloon loans, which are paid off with a single payment rather than a series of them.

How Can Using an Amortization Calculator Help Me?

An amortization calculator can not only show you how your payments will break down and what you’ll ultimately pay in interest for a particular loan. You can also use it to try out different scenarios for loans of different terms, amounts and interest rates.

Suppose you need to borrow $300,000, as in the example we’ve been using, but wonder what your payments would look like if you switched to a shorter term. Assuming the interest rate is still 7%, you’d find, for example, that compared with a 30-year loan, a 20-year one would cost you about $2,326 a month (rather than about $1,996) but save you $160,312 in interest over time ($418,527-$258,215).

You can explore many such permutations by adjusting the term, loan amount, and interest rate. Note that the interest rate can also vary according to the selected term. A lender might, for example, be charging a slightly lower rate on a 15- or 20-year loan versus a 30-year one.

The Bottom Line

Using an amortization calculator is an easy way to determine how much interest you’re paying on your mortgage or other loan each month and how quickly your outstanding balance is going down. You can also use it to explore various what-ifs, such as what if you opt for a shorter loan term, borrow a different amount, or get a lower interest rate.