What is loan amortization?

Amortization is the process of paying off a loan through regular, equal payments over time. Each payment covers both principal (the borrowed amount) and interest. Early payments are mostly interest, while later payments are mostly principal.

Why does interest decrease over time?

Interest is calculated on the remaining balance. As you pay down the principal, the balance decreases, so less interest accrues. This is why early payments are interest-heavy and later payments go mostly to principal.

How do extra payments affect the schedule?

Extra payments go directly to principal, reducing your balance faster. This reduces future interest charges and can shorten your loan term significantly. Even small extra payments add up over time.

What's the difference between amortizing and interest-only loans?

Amortizing loans pay both principal and interest, so the balance decreases over time. Interest-only loans only pay interest initially—the balance stays the same until you start paying principal.

Loan Amortization Calculator

Generate a complete amortization schedule showing how each payment is split between principal and interest over the life of your loan.

Calculator

Result

Loan Amount: $0.00
Interest Rate: -
Loan Term: -
Monthly Payment: $0.00
Total Interest: $0.00

Formula & Guide

Formula

I

Interest Portion

Interest = Balance × Monthly Rate

Interest on remaining balance

P

Principal Portion

Principal = Payment - Interest

Amount that reduces balance

Formula Variables

Balance

Remaining Balance

Outstanding loan amount before payment

Rate

Monthly Rate

Annual rate ÷ 12

Payment

Fixed Payment

Monthly payment amount

Step-by-Step Scenario

Example: 30-Year Mortgage

Loan Amount

$100,000

Interest Rate

5% annually

Loan Term

30 years (360 months)

1

Calculate Monthly Rate

Monthly Rate = 5% / 12 = 0.4167%
Monthly Rate = 0.004167

2

Calculate Monthly Payment

Payment = $100,000 × [0.004167(1.004167)^360] / [(1.004167)^360 - 1]
Payment ≈ $536.82

3

First Payment Breakdown

Interest = $100,000 × 0.004167 = $416.67
Principal = $536.82 - $416.67 = $120.15
New Balance = $100,000 - $120.15 = $99,879.85

Monthly Payment = $536.82

Additional Examples

15-Year Mortgage

Loan Amount: $200,000

Interest Rate: 4.5% annually

Loan Term: 15 years (180 months)

Monthly Payment

$1,529.99

Total Interest

$75,398

Auto Loan

Loan Amount: $30,000

Interest Rate: 6% annually

Loan Term: 5 years (60 months)

Monthly Payment

$579.98

Total Interest

$4,799

Characteristics of Amortization

Declining Interest

Interest portion decreases each month as you pay down the principal balance. Early payments are mostly interest.

Increasing Principal

More of each payment goes to principal as the loan progresses. Later payments reduce the balance faster.

Fixed Payment

Monthly payment amount stays constant throughout the loan term, making budgeting predictable.

Gradual Paydown

Loan balance decreases gradually over time. Each payment reduces both interest and principal.

Important Notes

In the first years, most of your payment goes to interest rather than principal.
Extra payments reduce principal faster, saving substantial interest over time.
Biweekly payments (26 half-payments/year) equal 13 monthly payments annually.
Use this schedule to track your loan payoff progress.

Frequently Asked Questions

Common questions about loan amortization.