What is amortization?
Amortization is paying off a loan with equal, regular payments over a set term. Each payment covers the interest that has built up since the previous one, and the rest reduces the principal. Because the balance gets smaller every month, the interest part of each payment falls and the principal part grows, until the last payment brings the balance to zero.
This amortization calculator builds the full schedule for any fixed-rate loan: a mortgage, a car loan, a student loan or a personal loan. Enter the loan amount, term and interest rate, and optionally extra payments — monthly, yearly or one-time — to see how much interest and time they save. Open any year in the table to see each month, or export the schedule as CSV or PDF. For a home loan with property tax, insurance and PMI, use the mortgage calculator; for a car with sales tax and a trade-in, the auto loan calculator.
How the schedule is calculated
First the fixed monthly payment is found with the amortization formula:
M = P × r × (1 + r)n / ((1 + r)n − 1)
where P is the loan amount, r the monthly interest rate (the annual rate divided by 12) and n the number of monthly payments. Then every month of the schedule repeats three steps:
- Interest = balance × r;
- Principal = M − interest, plus any extra payment;
- New balance = balance − principal.
Example: a $200,000 loan at 6% for 30 years has r = 0.06 / 12 = 0.005, n = 360 and a payment of about $1,199.10. Over 30 years you would pay about $231,676 in interest — more than the amount borrowed. The first three payments:
| Payment | Interest | Principal | Balance |
|---|---|---|---|
| 1 | $1,000.00 | $199.10 | $199,800.90 |
| 2 | $999.00 | $200.10 | $199,600.80 |
| 3 | $998.00 | $201.10 | $199,399.71 |
Amortization schedule example
Here is how the same $200,000 loan at 6% for 30 years is paid off, shown for a few of its years. The calculator above builds the full schedule, month by month, for your own loan.
| Year | Interest paid | Principal paid | Balance at year end |
|---|---|---|---|
| Year 1 | $11,933 | $2,456 | $197,544 |
| Year 5 | $11,269 | $3,120 | $186,109 |
| Year 10 | $10,180 | $4,209 | $167,371 |
| Year 15 | $8,712 | $5,677 | $142,098 |
| Year 20 | $6,732 | $7,658 | $108,007 |
| Year 25 | $4,060 | $10,329 | $62,024 |
| Year 30 | $457 | $13,932 | $0 |
How to read an amortization schedule
Each row of the schedule is one payment. It shows the date, the part of the payment that went to principal, the part that went to interest and the balance left after it. In the amortization table above, each year row adds up its twelve payments; open a year to see them one by one. The exported CSV also lists the full payment amount and any extra payment for every month.
To see how much of the loan you have paid off so far, find the row for your latest payment: the loan amount minus the balance in that row is the principal you have repaid, and that balance is roughly what you would owe to pay the loan off today.
Why the first years are mostly interest
Interest is charged on the outstanding balance, and the balance is highest at the start. On the loan above, more of each payment goes to principal than to interest only from payment 223, about 18.6 years in. It also means that refinancing or selling early leaves most of the original balance still to repay; the refinance calculator shows whether a new loan is worth it.
The effect of extra payments
Extra money paid toward principal lowers the balance that all future interest is charged on. Adding just $100 a month to the loan above pays it off about 65 months (5 years and 5 months) sooner and saves about $49,138 in interest. The earlier in the loan you start, the bigger the effect. For a mortgage, the mortgage payoff calculator compares extra, biweekly and lump-sum payments side by side.
Amortizing vs. non-amortizing loans
Mortgages, car loans, student loans and most personal loans are amortizing: every payment includes some principal, and the loan is paid off by the end of the term. Not every debt works this way:
- Interest-only loans charge only interest for a set period, so the balance does not fall. Payments jump when the interest-only period ends and principal repayment begins.
- Balloon loans have small payments for a few years and then a large final payment of the remaining balance.
- Credit cards are revolving credit with a minimum payment that changes with the balance, so there is no fixed schedule. Use the credit card calculator to see how long a balance takes to pay off.
- Adjustable-rate loans do amortize, but the payment is recalculated whenever the rate changes. This calculator assumes a fixed rate for the whole term.
Amortization in accounting
In accounting, amortization has a second meaning: spreading the cost of an intangible asset, such as a patent, a license, software or a trademark, over the years it is useful. With the usual straight-line method, a $50,000 patent with a useful life of 10 years is expensed at $5,000 a year. It works like depreciation of physical assets. This calculator is for loans; it does not compute asset amortization.
Related calculators
- The loan calculator also handles deferred payment loans and bonds, at any payment frequency.
- The payment calculator finds the monthly payment for a term, or the time to repay with a fixed payment.
- The interest rate calculator finds the real rate when you know the amount, the term and the payment.