Amortization Calculator

Free Online Amortization Calculator

This amortization calculator breaks down exactly how each loan payment is split between principal and interest over the full life of a fixed-rate loan, such as a mortgage, auto loan, or personal loan. Enter your loan amount, interest rate, and term, and instantly see your monthly payment, total interest paid, and a full year-by-year breakdown of principal versus interest.

Amortization is the process of paying off a loan through regular, fixed payments over time, where each payment covers both interest owed and a portion of the original loan balance. Understanding how this split changes over the life of a loan helps you see exactly where your money is going each month, and why the same fixed payment can feel very different early on versus near the end of the loan.

What Is Loan Amortization?

Amortization refers to spreading loan repayment out over a series of fixed, regular payments — typically monthly — until the loan balance reaches zero. Each payment amount stays exactly the same throughout the loan term, but the mix inside that payment shifts over time: early payments are weighted heavily toward interest, while later payments are weighted heavily toward principal. This happens because interest is always calculated on the current remaining balance, which starts high and gradually shrinks with every payment made.

Amortization Formula

The fixed monthly payment on an amortizing loan is calculated using the standard loan amortization formula:

M = P × [r(1+r)^n] / [(1+r)^n − 1]

Where:

• M = fixed monthly payment
• P = loan amount (principal)
• r = monthly interest rate (annual interest rate ÷ 12 ÷ 100)
• n = total number of monthly payments (loan term in years × 12)

How the Principal-Interest Split Is Calculated Each Month

Once the fixed monthly payment is known, each individual month's split between principal and interest is calculated separately:

• Interest Portion (this month) = Remaining Balance × Monthly Interest Rate
• Principal Portion (this month) = Monthly Payment − Interest Portion
• New Remaining Balance = Old Remaining Balance − Principal Portion
• This process repeats every month until the remaining balance reaches zero at the end of the loan term

How to Build an Amortization Schedule — Step by Step

Here's how the calculator constructs the full schedule:

• Step 1: Calculate the fixed monthly payment using the amortization formula above.
• Step 2: For month 1, calculate interest as the starting balance × monthly rate.
• Step 3: Subtract that interest from the monthly payment to find the principal portion.
• Step 4: Subtract the principal portion from the balance to get the new remaining balance.
• Step 5: Repeat steps 2–4 for every remaining month, using the updated balance each time, until the loan is fully paid off.

Worked Example — Building an Amortization Schedule

Let's look at the first payment on a $250,000 loan at 6.5% annual interest over 30 years.

• Step 1: Monthly rate = 6.5% ÷ 12 ÷ 100 ≈ 0.005417.
• Step 2: Number of payments = 30 × 12 = 360.
• Step 3: Fixed monthly payment ≈ $1,580.
• Step 4: Month 1 interest = $250,000 × 0.005417 ≈ $1,354.
• Step 5: Month 1 principal = $1,580 − $1,354 ≈ $226 — meaning in the very first payment, roughly 86% goes to interest and only about 14% goes toward actually reducing the loan balance.

Understanding the Principal vs. Interest Chart

The stacked bar chart on this page shows exactly how much of each year's total payments went toward principal versus interest. In the earliest years, the interest portion (the lighter bar segment) dominates each year's payments, while the principal portion (the darker segment) is comparatively small. As the years go on, this balance gradually flips — later years show mostly principal with very little interest remaining. This visual makes it immediately clear why paying off a loan early in its term reduces the loan balance so slowly compared to paying it off in its later years.

Why Early Payments Are Mostly Interest

This front-loaded interest pattern often surprises borrowers, especially on long-term loans like a 30-year mortgage. The reason is simple: interest is always calculated as a percentage of the current remaining balance, and that balance is at its highest right at the start of the loan. As you make payments and the balance shrinks, the interest charged each month shrinks along with it, freeing up more of the fixed payment to go toward principal. This is also why making extra principal payments early in a loan — even small ones — can meaningfully reduce total interest paid, since it shrinks the balance that interest gets calculated on for every remaining month of the loan.

Amortization on Different Loan Types

This same amortization structure applies to any fixed-rate installment loan, whether it's a home mortgage, auto loan, student loan, or personal loan — the underlying math is identical, only the loan amount, rate, and term change. Loans with shorter terms build equity or pay down principal much faster, since less total time means less total interest accumulates, and a larger share of each payment goes toward principal from an earlier stage. This is why a 15-year mortgage, despite having a higher monthly payment than a 30-year mortgage on the same loan amount, ends up paying dramatically less total interest over the life of the loan.

The Impact of Extra Principal Payments

Making an extra payment toward principal — even a single one-time payment — immediately reduces the balance that future interest is calculated on, which shortens the effective loan term and lowers total interest paid for every month afterward. Because the interest savings compound over the remaining life of the loan, extra payments made earlier in the amortization schedule have a bigger impact than the same extra payment made later, when the balance and remaining interest are already much lower.

Amortization vs. Interest-Only Loans

It's worth distinguishing a standard amortizing loan from an interest-only loan, since the two behave very differently. On an amortizing loan (what this calculator models), every payment includes some principal, so the balance steadily decreases toward zero by the end of the term. On an interest-only loan, payments only cover the interest for an initial period, and the principal balance doesn't decrease at all until that period ends — meaning the borrower still owes the full original amount once the interest-only period is over. Amortizing loans are far more common for standard mortgages and installment loans, since they guarantee the debt is fully paid off by a set date.

Common Mistakes When Reading an Amortization Schedule

A common misunderstanding is assuming that because the monthly payment stays the same, the loan balance decreases at a constant rate — it doesn't; the balance drops slowly at first and then increasingly faster as more of each payment shifts toward principal. Another mistake is underestimating how much total interest a long-term loan actually costs, since the fixed monthly payment can make the total interest feel smaller than it really is over 15 or 30 years. It's also worth remembering that this calculator assumes a fixed interest rate for the full term — for adjustable-rate loans, the schedule will change whenever the rate resets.

Why Use This Amortization Calculator?

This tool gives you an instant, accurate monthly payment along with a full year-by-year breakdown of principal versus interest, visualized in a clear stacked bar chart. Whether you're evaluating a mortgage, comparing loan terms, or just want to understand exactly where your monthly payment goes, this calculator gives you a transparent, easy-to-read answer in seconds.