An amortizing loan is one you pay off in equal instalments, where each payment covers the interest that has built up since the last one and puts whatever is left towards the balance. Enter the amount, the rate and the term above to see the monthly payment, the total interest, and the month-by-month schedule behind it.
Key terms
- Principal — the amount borrowed, and the balance still owed as it falls.
- Term — how long you have to repay, converted here to a number of monthly payments.
- Amortization — repaying through regular payments that reduce the balance to zero by the end of the term.
- Schedule — the table of every payment, showing how each one splits between interest and principal.
How it works
The payment is set once, at the start, at the level that will clear the balance precisely at the end of the term. Everything after that follows from it: each month the lender charges interest on whatever you still owe, and the rest of your payment reduces the balance.
Monthly payment
M = P × i(1 + i)n ÷ ((1 + i)n − 1)
P is the principal, i is the monthly rate (annual rate ÷ 12) and n is the number of monthly payments. At a rate of zero the formula divides by zero, and the payment is simply P ÷ n.
The consequence is the part most people find surprising. Because interest is charged on the outstanding balance, and the balance is at its highest at the beginning, the earliest payments are mostly interest. On a $100,000 loan at 4% over 30 years, the first payment of about $477 contains roughly $333 of interest and only $144 of principal. By the final year that has reversed almost entirely.
That is what the chart above shows. The balance falls slowly at first and then steepens — it is a curve, not a straight line, and the shallow start is where the interest is paid.
How to use this calculator
- Enter the amount you are borrowing.
- Enter the annual interest rate as a percentage, not a decimal — 6.5, not 0.065.
- Enter the term in years. The calculator converts it to monthly payments.
- Read the monthly payment, then look at the total interest. Over a long term it is often a large fraction of the amount borrowed.
- Open the schedule to see any individual month. The first twelve are shown by default; use Show all for the full term.
What the payment does not include
This is principal and interest only. A real mortgage payment usually also carries property taxes, homeowners insurance and, on smaller deposits, mortgage insurance — often bundled into one monthly bill through an escrow account. Those additions can be a substantial part of what you actually pay each month, so treat the figure here as the loan portion rather than the whole housing cost.
The calculation also assumes a fixed rate for the entire term. An adjustable-rate loan follows this arithmetic only until its rate changes, after which the payment is recalculated on the balance and the time remaining.
Frequently asked questions
Why is so much of my early payment going to interest?
Because interest is charged on the balance outstanding, and at the start the balance is the whole loan. The payment is fixed, so once that month’s interest is covered, whatever remains reduces the principal — a small amount at first, growing every month as the balance falls.
Does paying extra actually help?
Substantially, if the extra goes to principal. Every unit taken off the balance early removes all the interest it would have accrued for the rest of the term. The effect is largest in the opening years, when the balance is highest and the term remaining is longest.
Why does a shorter term cost less overall but more each month?
The same principal is spread over fewer payments, so each one is larger. But the balance falls faster, so less interest accrues in total. A 15-year loan typically costs far less in interest than a 30-year one at the same rate.
Is the schedule exactly what my lender will send?
Close, but expect small differences. Lenders round each payment to the cent, may use a slightly different day-count convention, and often adjust the final payment by a few cents to close the balance cleanly. The totals will match to within a rounding error.
What rate should I enter?
The nominal annual interest rate on the loan. If you have been quoted an APR it will be slightly higher, because it folds in certain fees — useful for comparing offers, but the interest rate is what drives this calculation.
