Loan Amortization Calculator

Your loan payment stays the same every month, but the split between principal and interest changes dramatically. Think of it like filling a bathtub with the drain partly open — early on, most water goes down the drain (interest), but as the water level rises (principal payments), less drains out each minute. This calculator shows you that in the first year of a 30-year mortgage, roughly 85% of each payment goes to interest.

The amortization formula assumes you'll make every payment on time for the full term. It calculates your monthly payment so that after exactly 360 payments (for a 30-year loan), your balance reaches zero. The magic happens through compound interest in reverse — each month, interest is charged only on the remaining balance, which shrinks with each payment.

Your actual loan might include property taxes, insurance, or PMI that aren't captured in this basic calculation. Lenders call this PITI (Principal, Interest, Taxes, Insurance). This calculator shows only the principal and interest portion — typically 70-80% of your total monthly housing payment.

Use this calculator when shopping for loans to compare total costs, not just monthly payments. A loan with lower payments but longer terms often costs much more overall. Run scenarios with different down payments to see how they affect your monthly burden and total interest.

This tool is essential before making any major purchase decision. Real estate agents and car dealers often focus on monthly payments to make expensive purchases seem affordable. Knowing your actual payment before shopping prevents costly emotional decisions and keeps you within your budget.

Run the calculation again before refinancing to see if the new loan terms actually save money. Many refinances extend your loan term, which can increase total interest even with a lower rate. Compare your remaining payments on the current loan versus total payments on the new loan.

The biggest mistake is not factoring in the full cost of homeownership beyond the mortgage payment. Property taxes, insurance, HOA fees, and maintenance can add 30-50% to your monthly housing cost. A $1,500 mortgage payment often becomes $2,000+ in total monthly housing expense.

Many borrowers focus only on monthly payment without considering total interest paid. A 15-year loan at 5.5% costs significantly less than a 30-year loan at 5% despite the higher monthly payment. On a $300,000 loan, the 15-year saves about $180,000 in interest — enough to fund retirement or pay for college.

Another common error is not understanding how extra principal payments work. Paying an extra $50/month doesn't reduce your required payment — it shortens your loan term and reduces total interest. If you need lower monthly payments, you need to refinance, not make extra payments.

The monthly payment formula is M = P[r(1+r)^n]/[(1+r)^n - 1], where P is principal, r is monthly interest rate (annual rate ÷ 12), and n is total payments. For a $250,000 loan at 6% annual rate (0.5% monthly) for 30 years: M = 250,000[0.005(1.005)^360]/[(1.005)^360 - 1] = $1,498.88.

Interest each month equals the remaining balance times the monthly rate. Principal payment equals total payment minus interest. So month 1: Interest = $250,000 × 0.005 = $1,250, Principal = $1,498.88 - $1,250 = $248.88. Month 2: Balance = $249,751.12, Interest = $1,248.76, Principal = $250.12.

The payment formula breaks down when the interest rate is zero. For zero-interest loans, the payment simply equals principal divided by number of payments: $12,000 ÷ 60 months = $200/month. This is why the calculator includes a special case to handle zero-rate scenarios correctly.

The standard amortization formula assumes a fixed rate for the full term, but most homeowners refinance within 7 years. Practitioners use IRR rather than APR to compare loans with different fee structures. A loan with 2 points upfront at 5.5% can cost less than a no-fee loan at 6% if you hold it long enough, but the break-even point depends on your refinancing timeline.