Amortization Calculator

How Amortization Calculator Works

M = P × [r(1+r)^n] / [(1+r)^n − 1]

M

Monthly Payment — The required fixed payment per month that fully amortizes the loan over the remaining term, covering both principal and interest in each installment.

P

Principal — The remaining loan balance that must be repaid. As you make payments, this balance decreases slowly at first because early payments are mostly interest.

r

Monthly Rate — Annual interest rate divided by 12. Even a small change in the rate significantly affects the monthly payment and total interest over the life of the loan.

n

Remaining Payments — Total number of monthly payments left on the loan. A 30-year mortgage has 360 payments; a 15-year mortgage has 180 payments.

How to Use

1. Enter the loan amount, interest rate, and loan term in years or months.
2. Add extra monthly payments or extra annual lump-sum payments to see the impact on total interest and payoff timeline.
3. The comparison table below shows both the standard amortization schedule and your accelerated payoff schedule side by side.
4. Every dollar of extra principal payment saves approximately that dollar plus all the compounded interest it would have generated for the remainder of the loan term.

Common Uses

• •See exactly how each loan payment is split between principal and interest over the full life of a mortgage or auto loan.
• •Compare how extra monthly payments or lump-sum contributions reduce your total interest and shorten your loan term.
• •Plan a debt payoff strategy by understanding when equity builds fastest during the amortization schedule.

Understanding the Result

Frequently Asked Questions

What is the difference between extra monthly vs. extra annual payments?

Extra monthly payments reduce your balance consistently throughout the year, which is usually more effective because each payment immediately reduces the principal that accrues interest in subsequent months. Extra annual lump-sum payments (like a tax refund or bonus) still save significantly but are applied once per year. Combining both approaches is the most effective strategy for maximizing interest savings.

Do extra payments always go to principal?

They should, but you must specify this to your lender. Some lenders automatically apply extra payments to future scheduled payments rather than principal unless explicitly instructed otherwise. Always mark extra payments as "apply to principal" on your payment form, and confirm with your loan servicer that they are being applied correctly. This is especially important for mortgage servicers.

Is it better to make extra payments or invest the difference?

It depends on your loan rate versus expected investment returns. If your mortgage is at 7% and investments return 7%, the math is roughly equal on a pre-tax basis. However, paying down debt offers a guaranteed, risk-free return equal to your interest rate, while investments carry market risk. Most financial advisors suggest prioritizing debt repayment when the interest rate is above 6-7%, and focusing on investments when the rate is below 4-5%.

What is the difference between simple interest and amortized interest?

Simple interest accrues daily based on the current balance, so paying early reduces interest for that month. Amortized interest is calculated monthly based on a fixed schedule set at the beginning of the loan. Most mortgages use simple interest, meaning the date you make your payment within the month affects how much interest accrues. Paying biweekly instead of monthly can reduce total interest because you effectively make one extra payment per year.

Sources

• Consumer Financial Protection Bureau
• Investopedia