About This Tool
An amortization schedule breaks every loan payment into its two core components: the portion that reduces your principal balance and the portion that covers the lender's interest charge. Over the life of a fixed-rate loan, the ratio between these two portions shifts dramatically. Early payments are dominated by interest, while later payments apply mostly toward principal. Understanding this shift is essential for making informed decisions about extra payments, refinancing, and overall debt strategy. This free amortization calculator generates your complete payment-by-payment schedule for any fixed-rate loan, including mortgages, auto loans, student loans, and personal loans. Enter your loan amount, annual interest rate, term length, and an optional extra monthly payment to see your monthly payment, total interest cost, total amount paid, and exact payoff date. The full schedule table shows every single payment with its date, principal portion, interest portion, and remaining balance so you can track exactly where your money goes each month. The extra payment feature reveals how even small additional amounts can save thousands in interest and shave years off your loan. A $200,000 mortgage at 6.5% over 30 years costs roughly $255,000 in interest. Adding just $100 per month cuts nearly 4 years off the loan and saves over $40,000 in interest charges. Use the calculator to experiment with different extra payment amounts and see the concrete impact on your payoff timeline.
How Amortization Works
Amortization is the process of spreading a loan into a series of fixed payments over time. Each payment covers the interest accrued since the last payment plus a portion of the outstanding principal. The standard amortization formula calculates the fixed monthly payment as:
M = P * [r(1+r)^n] / [(1+r)^n - 1]
- M = Fixed monthly payment
- P = Loan principal (original balance)
- r = Monthly interest rate (annual rate / 12)
- n = Total number of payments (years x 12)
At the start of the loan, the outstanding balance is high, so interest charges consume most of each payment. As the balance decreases, more of each payment goes toward principal. By the final years, nearly the entire payment reduces the balance. This front-loading of interest is why early extra payments have such a large long-term impact.
The Power of Extra Payments
Making extra payments directly reduces your principal balance, which means less interest accrues in every subsequent month. The compounding effect of this reduction accelerates over time, creating substantial savings.
Consider a $300,000 loan at 7% for 30 years:
- No extra payments: $1,995.91/month, $418,527 total interest, 360 months
- $200 extra/month: Saves approximately $92,000 in interest and pays off about 7 years early
- $500 extra/month: Saves approximately $167,000 in interest and pays off about 12 years early
One popular strategy is to make one extra full payment per year, either as a lump sum or by dividing your monthly payment by 12 and adding that amount each month. This single change on a 30-year mortgage typically reduces the term by 4 to 5 years.
Reading Your Amortization Schedule
The amortization table generated by this calculator contains six columns for each payment:
- Payment Number: Sequential count from first to last payment
- Date: The month and year of each scheduled payment
- Payment: Total amount due that month (including any extra payment)
- Principal: The portion of the payment that reduces your loan balance
- Interest: The portion that goes to the lender as an interest charge
- Remaining Balance: What you still owe after this payment
Review the schedule to find the crossover point where principal exceeds interest in each payment. For a 30-year mortgage, this crossover typically occurs around year 18 to 22, depending on the interest rate. Knowing this helps you decide when refinancing or extra payments offer the best return.
Amortization vs. Other Loan Types
Not all loans use amortization. Understanding the differences helps you choose the right debt structure:
- Fully amortized loans: Fixed payments that fully repay principal and interest by the end of the term. Mortgages and auto loans use this structure.
- Interest-only loans: Payments cover only the interest for a set period. The full principal remains due later, often as a balloon payment or through amortized payments that begin after the interest-only phase.
- Negative amortization: When minimum payments do not cover the interest charge, the unpaid interest is added to the balance. The loan balance actually grows over time. This is rare but exists in certain adjustable-rate mortgage products.
- Balloon loans: Small regular payments followed by a large lump-sum payment at the end. Common in commercial real estate.
This calculator handles fully amortized fixed-rate loans, which are the most common structure for residential mortgages, vehicle loans, and personal installment loans.
When to Refinance
Refinancing replaces your existing loan with a new one, typically at a lower interest rate. The general guideline is that refinancing makes sense when you can reduce your rate by at least 0.5% to 1%, though the exact threshold depends on closing costs and how long you plan to keep the loan.
Use this calculator to compare your current remaining balance and rate against a new loan offer. Calculate the monthly savings, then divide your refinancing costs by that monthly savings to find your break-even point in months. If you plan to stay in the property beyond that break-even period, refinancing is likely worthwhile.
Keep in mind that refinancing restarts the amortization clock. If you are 10 years into a 30-year mortgage and refinance into a new 30-year term, you will pay interest for 40 total years unless you refinance into a shorter term or make extra payments to compensate.
Frequently Asked Questions
What is an amortization schedule?
An amortization schedule is a complete table showing every payment over the life of a loan. Each row lists the payment amount, how much goes to principal, how much goes to interest, and the remaining balance after that payment. It gives borrowers full transparency into how their loan is being repaid month by month.
Why do I pay more interest at the beginning of a loan?
Interest is calculated on the outstanding balance. At the start, your balance is at its highest, so the interest charge is largest. As you make payments and reduce the balance, the interest portion shrinks and more of each payment goes toward principal. This is a mathematical consequence of the amortization formula, not a bank policy.
How much can I save with extra payments?
The savings depend on your loan size, rate, and term. As a rough benchmark, adding 10% to your monthly mortgage payment on a 30-year loan typically saves 15% to 20% of total interest and reduces the term by 4 to 6 years. Use the extra payment field in this calculator to see your exact savings for any amount you choose.
Is it better to make extra payments or invest the money?
This depends on your interest rate and expected investment returns. If your loan rate is 7% and you expect 10% stock market returns, investing may be better on paper. However, paying off debt provides a guaranteed return equal to the interest rate and reduces financial risk. Many financial planners suggest a balanced approach: meet employer 401(k) match first, then direct surplus cash toward high-interest debt, then invest additional savings.
Does this calculator work for adjustable-rate mortgages?
This calculator assumes a fixed interest rate for the entire loan term. Adjustable-rate mortgages (ARMs) have rates that change periodically, which alters the payment and schedule at each adjustment. For ARMs, this tool can estimate payments during the initial fixed-rate period, but the schedule will not be accurate once the rate adjusts.
What is the difference between amortization and depreciation?
Amortization refers to paying off a debt over time through regular payments. Depreciation refers to the decline in value of an asset over its useful life. In accounting, both involve spreading costs over time, but amortization applies to loans and intangible assets while depreciation applies to physical assets like equipment and buildings. This calculator addresses loan amortization exclusively.