Amortization Calculator

Amortization is the process of paying off debt through regular payments over time, with each payment including both principal and interest. Understanding how amortization works reveals why your monthly payment stays the same while the proportion going to principal versus interest shifts dramatically over the loan term. Reading an amortization schedule transforms abstract loan terms into concrete numbers, helping you make strategic decisions about extra payments, refinancing, and long-term financial planning.

Reading and Understanding Amortization Schedules

An amortization schedule breaks down every payment over the entire loan term, showing the date, payment amount, interest portion, principal portion, and remaining balance. This detailed roadmap reveals exactly how your loan will be paid off if you make only the scheduled payments without prepayment or refinancing.

Looking at a 30-year 250,000 dollar mortgage at 5.5 percent, the schedule shows payment one includes 1,146 dollars interest and 215 dollars principal. Payment 120 (year 10) includes 971 dollars interest and 390 dollars principal. Payment 240 (year 20) includes 686 dollars interest and 675 dollars principal. Payment 360 (final payment) includes 6 dollars interest and 1,355 dollars principal. The consistency of the 1,361 dollar payment masks the dramatic shift in composition.

The schedule reveals critical information for decision-making. If you're considering selling your home, you can see exactly how much principal you'll have paid off by that date and what your remaining balance will be. If you're thinking about refinancing, you can compare your current amortization to a potential new loan's schedule to evaluate whether refinancing makes financial sense beyond just comparing interest rates.

Amortization vs Revolving Credit

Amortized loans have fixed repayment schedules with definite payoff dates, unlike revolving credit such as credit cards and HELOCs where payments fluctuate based on your balance and you can borrow repeatedly up to your limit. This fundamental difference affects how you should approach each debt type strategically.

Credit cards calculate minimum payments as a small percentage of your balance, often 2 to 3 percent, which creates an extremely long amortization period if you make only minimums. A 10,000 dollar balance at 18 percent with 2.5 percent minimum payments takes over 28 years to repay with more than 11,000 dollars in interest. The payment decreases as your balance falls, extending repayment indefinitely unlike fixed amortized loans.

Converting revolving debt to amortized installment loans through personal loans or balance transfer cards with fixed payment plans accelerates payoff and saves interest. The psychological benefit of a defined payoff date and steadily decreasing balance provides motivation that the endless treadmill of minimum payments on revolving credit lacks.

Refinancing and Its Effect on Amortization

Refinancing resets your amortization schedule, which can work for or against you depending on your situation. If you've been paying your mortgage for 10 years and refinance into a new 30-year loan, you're extending your total payment period from 30 to 40 years. Even with a lower interest rate, you might pay more total interest due to the extended term.

Strategic refinancing maintains or shortens your amortization period while capturing rate benefits. If you have 22 years remaining on your original mortgage, refinancing to a 20 or 15-year term while securing a lower rate accelerates payoff while reducing total interest. On a 200,000 dollar remaining balance at 7 percent with 22 years left, refinancing to 5 percent over 15 years raises your monthly payment from 1,556 to 1,582 dollars but saves approximately 116,000 dollars in total interest.

Compare amortization schedules side-by-side when evaluating refinancing options. Look beyond monthly payments to total interest costs and payoff dates. A refinance that saves 200 dollars monthly might add 80,000 dollars in total interest by extending your amortization period—a poor trade-off unless you absolutely need the cash flow relief and plan to invest the monthly savings productively.

The Mechanics of Loan Amortization

An amortized loan divides your repayment into equal installments over a fixed period, typically calculated so that each payment covers interest accrued on the current balance plus a portion of principal. Early payments are predominantly interest because you owe interest on the full original balance. As you pay down principal, interest charges decrease, allowing more of each payment to reduce the principal balance.

Consider a 200,000 dollar mortgage at 6 percent interest over 30 years. Your fixed monthly payment is approximately 1,199 dollars. In the first payment, interest accounts for 1,000 dollars (200,000 × 0.06 ÷ 12 months) while only 199 dollars reduces principal. Your new balance is 199,801 dollars. The second payment charges interest on this slightly lower balance—999 dollars in interest, 200 dollars to principal. Each month, the interest portion decreases by a tiny amount while the principal portion increases correspondingly.

By the halfway point after 15 years and 180 payments, you've paid approximately 215,000 dollars total but still owe 138,000 dollars—you've only reduced principal by 62,000 dollars despite making 180 equal payments. This happens because the early years are so interest-heavy. In the final year, monthly payments might include 950 dollars toward principal and only 50 dollars in interest. The same payment amount has a radically different composition depending on where you are in the loan term.

Negative Amortization and Interest-Only Loans

Some loans feature negative amortization where payments don't cover the interest due, causing the loan balance to grow over time despite making payments. This most commonly occurs with certain adjustable-rate mortgages offering extremely low initial payments below the interest accrual rate. If your payment is 1,200 dollars but monthly interest is 1,500 dollars, the unpaid 300 dollars is added to your principal balance.

Negative amortization is dangerous because you're going deeper into debt while making payments. Your 200,000 dollar loan could grow to 220,000 dollars or more before the payment adjusts to fully amortizing levels, at which point your payment could double or triple. This structure appealed to some borrowers during the housing boom but contributed to widespread foreclosures when payments adjusted upward beyond borrowers' ability to pay.

Interest-only loans require you to pay only interest for an initial period, typically 5 to 10 years, with no principal reduction. A 350,000 dollar interest-only mortgage at 6 percent requires 1,750 dollars monthly during the interest-only period. Your balance remains 350,000 dollars throughout this period. When the interest-only period ends, the loan converts to a fully amortizing payment based on the remaining term, often causing payment shock. That same loan amortizing over the remaining 20 years requires payments of approximately 2,507 dollars—a 757 dollar monthly increase.

The Impact of Extra Principal Payments

Making additional principal payments dramatically accelerates payoff and saves thousands in interest because each extra dollar immediately reduces the balance on which future interest is calculated. The earlier you make extra payments, the more they save because that reduced principal compounds over more months of avoided interest charges.

On a 300,000 dollar mortgage at 6 percent over 30 years with a 1,799 dollar monthly payment, paying an extra 200 dollars monthly toward principal saves approximately 129,000 dollars in total interest and pays off the loan 10 years early. This happens because your 200 dollar extra payment immediately reduces the balance, preventing interest from accruing on that 200 dollars for the remaining loan term.

Even one-time extra payments create meaningful savings. Making a single 5,000 dollar principal payment in year five of the same mortgage saves approximately 16,000 dollars in interest over the life of the loan and shortens the term by about 20 months. The earlier you make this lump sum payment, the greater the impact. That same 5,000 dollars in year one saves roughly 19,000 dollars in interest, while in year 20 it only saves about 6,000 dollars because there's less remaining term for the savings to compound.

Amortization on Different Loan Types

Mortgages are the most common amortized loans, typically with 15 or 30-year terms. The 30-year mortgage offers lower monthly payments but substantially higher total interest, while 15-year mortgages have higher payments but dramatically lower total interest costs. A 275,000 dollar loan at 5.5 percent costs approximately 283,000 dollars in interest over 30 years versus only 112,000 dollars over 15 years—a savings of 171,000 dollars for accepting higher monthly payments of 2,247 dollars instead of 1,562 dollars.

Auto loans amortize over shorter periods, typically 36 to 72 months, with corresponding faster principal reduction. A 30,000 dollar car loan at 5 percent for 60 months has a 566 dollar monthly payment with total interest of 3,968 dollars. The faster amortization means you build equity more quickly than with mortgages, though vehicles depreciate while homes typically appreciate, offsetting this advantage.

Personal loans usually amortize over two to seven years with fixed payments. A 15,000 dollar personal loan at 9 percent over four years requires monthly payments of 373 dollars with 2,918 dollars in total interest. The relatively short term means principal reduction happens much faster than mortgages, with the loan halfway paid off around month 27 rather than much later in the term as with 30-year mortgages.

Bi-Weekly Payment Strategies

Making half your monthly payment every two weeks results in 26 half-payments annually, equivalent to 13 full monthly payments instead of 12. This extra payment each year dramatically accelerates amortization and saves substantial interest. On a 250,000 dollar mortgage at 6 percent, bi-weekly payments of 750 dollars (half the 1,499 monthly payment) save approximately 68,000 dollars in interest and pay off the loan four years early.

The strategy works by getting you ahead on the amortization schedule. Each bi-weekly payment reduces principal slightly earlier than the monthly schedule, decreasing interest accrual before the next payment. Over the year, you've made one full extra payment that applies entirely to principal, permanently reducing your balance and all future interest calculations.

Some lenders charge fees for bi-weekly payment programs, which may not be worth the cost when you can achieve the same result by making one extra monthly payment annually or adding an extra one-twelfth to each monthly payment. Simply paying 1,624 dollars monthly instead of 1,499 dollars on the example above achieves nearly identical savings without enrollment fees or special programs.

Using Amortization Knowledge Strategically

Understanding amortization helps you make informed decisions about extra payments. Target extra payments toward your mortgage in early years when they prevent the most interest, or focus on higher-interest debts first while making scheduled payments on lower-rate mortgages. Some situations favor paying off a 6 percent mortgage aggressively, while others make more sense investing extra money in retirement accounts earning 8 to 10 percent returns.

Request your loan's amortization schedule from your lender or generate one using online calculators to see exactly where you stand. Mark key milestones like when you'll owe less than your home's likely value, when you'll hit 50 percent payoff, or when you'll reach 20 percent equity to eliminate PMI. These concrete goals provide motivation and help you track progress toward debt freedom.