M = P × [r(1+r)^n] / [(1+r)^n - 1]M is the fixed monthly payment, P is the loan amount, r is the monthly interest rate (annual rate divided by twelve), and n is the total number of monthly payments. Each monthly payment covers the interest accrued on the current balance plus a portion of principal. Early in the loan, most of the payment is interest. As the balance decreases, each payment covers more principal and less interest.
Enter your loan amount, interest rate, and term to see your monthly payment, total interest paid, and a year-by-year breakdown of principal paid, interest paid, and remaining balance.
Enter your loan amount, annual interest rate, and loan term. The calculator shows your fixed monthly payment, total interest paid over the life of the loan, and a year-by-year snapshot of principal paid, interest paid, and remaining balance.
Every fixed-rate loan follows the same pattern: equal monthly payments, but the split between principal and interest changes every month. Early payments are mostly interest. Later payments are mostly principal. This is how amortization works. An amortization calculator makes this visible. You see not just the payment, but where each dollar actually goes year by year: how much reduces the balance and how much is interest charged on the remaining balance. For mortgages in particular, understanding the amortization schedule explains why making even small extra payments early in the loan saves so much money compared to making the same extra payments later.
A familiar scenario
Walking through an example
Example: $200,000 loan at 6.5% for 30 years
- 1Loan amount P = $200,000
- 2Monthly rate r = 6.5% / 12 = 0.5417%
- 3Total payments n = 30 × 12 = 360
- 4M = $200,000 × (0.005417 × (1.005417)^360) / ((1.005417)^360 - 1)
- 5(1.005417)^360 = 7.0288
- 6M = $200,000 × (0.03806 / 6.0288) = $200,000 × 0.006321 = $1,264.14
- 7Total paid = $1,264.14 × 360 = $455,089
- 8Total interest = $455,089 - $200,000 = $255,089
- 9Year 1 month 1: $200,000 × 0.005417 = $1,083.33 interest, $180.81 principal
- 10After 12 months: principal paid ~$2,235, interest paid ~$12,935, balance ~$197,765
When this comes up
Where you would actually use this
- Understanding a mortgage before closing: Run your mortgage numbers to see the total interest you will pay and how much of your first year's payments actually reduces the principal. Many buyers are surprised to learn that in year 1 of a 30-year mortgage, less than 20% of their payments typically go to principal.
- Calculating the benefit of extra principal payments: Your monthly payment is fixed, but extra payments go entirely to principal. Reducing the principal faster cuts the interest on every subsequent month. Even one extra payment per year on a 30-year mortgage can shorten the loan by several years.
- Comparing 15-year vs. 30-year mortgage: Run the same loan amount at both terms. A 15-year has a higher monthly payment, but the total interest is often less than half of what a 30-year costs. Compare the total interest figures, not just the monthly payments.
- Checking how much equity you have built: The remaining balance after year 5 or year 10 shows how much of the loan you have paid off. Subtracting that from the original loan amount tells you how much equity the loan paydown alone has produced (before any appreciation).
Where it trips people up
Things people get wrong
- Expecting significant equity early in a long loan: In the first year of a 30-year mortgage, you pay down less than 1% of the balance. Most of each payment is interest. This is why selling a home in the first few years often leaves little equity after accounting for purchase costs.
- Using APR instead of the interest rate: APR includes fees and gives a better comparison between loans. But the payment calculation uses the stated interest rate, not the APR. Use the rate on your loan note for this calculator.
- Assuming the schedule changes if you pay extra: Extra payments reduce the balance and shorten the loan, but they do not reduce the required monthly payment. If you want to confirm you own the house in fewer years, you need to keep making those extra payments; the required payment stays the same.
- Forgetting that the total paid is the commitment: The monthly payment fits the budget. The total paid is the actual cost. $455,000 paid over 30 years for a $200,000 loan means you paid $255,000 in interest. Knowing this number upfront helps you make a more deliberate borrowing decision.
The math
The formula, formally
- 1Enter the loan amount: the principal you are borrowing.
- 2Enter the annual interest rate. For a mortgage, use the rate on your loan documents, not the APR.
- 3Enter the loan term in years. Common terms: 15 or 30 years for mortgages, 3 to 7 years for auto loans.
- 4The calculator computes your fixed monthly payment using the amortization formula.
- 5It then simulates every payment, tracking the portion that goes to interest and the portion that reduces the balance.
- 6Year 1 and year 5 breakdowns are shown to illustrate how the interest-to-principal ratio shifts over time.
Terms to know
Glossary
| Term | Definition |
|---|---|
| Amortization | The process of paying off a loan in equal periodic installments. Each payment covers the current period's interest and a portion of principal. Because the balance decreases over time, each subsequent payment applies a slightly larger share to principal and a smaller share to interest. |
| Negative amortization | When the loan balance increases despite making payments. This happens when the payment does not cover the interest accrued. Some adjustable-rate mortgages allowed negative amortization, causing borrowers to owe more than they originally borrowed. Fixed-rate loans do not have this problem. |
| Principal | The outstanding balance of a loan, excluding any accrued interest. Each payment that exceeds the monthly interest charge reduces the principal. The principal balance is what drives the interest charge for the next period. |
| Equity | The portion of an asset's value you own outright. For a home, equity = market value minus remaining mortgage balance. Equity grows from two sources: loan paydown (principal payments) and price appreciation. Amortization is the loan-paydown component. |
Expert advice
Pro tips
- Make one extra payment per year on a mortgage: On a 30-year mortgage, one extra payment per year typically shortens the loan by 4 to 5 years and saves tens of thousands in interest. Apply extra payments directly to principal and ask your lender to confirm they are applied that way.
- Refinance when the rate drops 1% or more: Refinancing resets the amortization schedule, so you start over with a higher interest share in the early payments. Compare the total interest remaining on your current loan to total interest on the new loan, accounting for closing costs.
- Use a 15-year term if the payment is manageable: The total interest on a 15-year mortgage at the same rate is less than half of a 30-year mortgage. The payment is higher, but the long-term savings are substantial. Run both in this calculator with your loan amount to see the comparison.
- Apply bonuses and windfalls to the principal: Lump-sum principal payments early in a loan save the most interest because they reduce the balance during the period when the interest-to-principal ratio is highest. A $5,000 lump sum in year 2 saves more than $5,000 in year 20.
Common questions
Frequently asked questions
For related calculations, try the Loan Calculator, Mortgage Calculator, or Auto Loan Calculator. Browse all Calculator Online calculators for the full catalog.
Methodology
This calculator uses the standard amortization calculator formula. Results match those from established financial, scientific, and health references.
Reviewed by
Calculator Online Editorial Team. All formulas verified against authoritative sources before publication.
Last updated
2026-05-24
Sources & References
- Consumer Financial Protection Bureau, Understand Your Loan
CFPB resource on mortgage terms, amortization, and what to look for in loan documents.
- Investopedia, Amortization Definition
Textual walkthrough of the amortization formula and how schedules are built.
- Federal Reserve, Mortgage Survey
Federal Reserve data on historical mortgage interest rates.