Amortization Calculator

An amortization schedule is a complete table of periodic loan payments showing the amount of principal and interest that comprise each payment until the loan is paid off at the end of its term. Each row in the schedule details the payment number, payment date, total payment amount, the portion applied to interest, the portion applied to principal, and the remaining loan balance after that payment. Lenders are required to provide this schedule under the Truth in Lending Act (Regulation Z). It helps borrowers understand exactly how their debt decreases over time and how much of each dollar goes toward building equity versus paying the cost of borrowing.

Early mortgage payments are front-loaded with interest because interest is calculated on the current outstanding balance. At the start of the loan, the balance is at its highest point, so the interest charge is also at its highest. For example, on a $300,000 mortgage at 6%, the first month's interest alone is $1,500. Since the monthly payment is fixed, the remaining amount after interest goes to principal. As the balance slowly decreases, the interest charged each month also decreases, which means progressively more of each fixed payment reduces the principal. This compounding dynamic means it can take many years before you are paying more principal than interest each month.

The monthly payment on a fully amortizing loan is calculated using the formula: M = P × [r(1+r)^n] / [(1+r)^n − 1], where P is the loan principal, r is the monthly interest rate (annual rate divided by 12), and n is the total number of monthly payments (loan term in years multiplied by 12). This formula derives from the present value of an annuity, ensuring that equal payments over the life of the loan will exactly pay off both the principal and all accrued interest. Changing any one of these variables — principal, rate, or term — will change the payment amount and the total interest paid over the life of the loan.

Amortization and depreciation are both accounting concepts for spreading costs over time, but they apply to different types of assets. Amortization in lending refers to the scheduled repayment of a debt over time through regular installment payments. In accounting, amortization refers to the gradual write-down of intangible assets such as patents, trademarks, or goodwill. Depreciation, by contrast, applies to tangible assets like equipment, vehicles, or buildings and reflects the physical wear and reduction in value of those assets over time. When discussing loans and mortgages, amortization always refers to the loan repayment process, not the accounting treatment of assets.

Making extra payments toward the principal of an amortizing loan reduces the outstanding balance faster than scheduled, which in turn reduces the amount of interest charged on all future payments. This creates a compounding effect: a lower balance means lower interest, which means more of each regular payment goes to principal, which lowers the balance further. The result is a shorter loan term and significant interest savings. For example, adding $200 per month to a 30-year $250,000 mortgage at 6% can cut the loan term by approximately 6 years and save over $60,000 in interest. It is critical to specify that extra payments should be applied to principal, not to future scheduled payments.

Negative amortization occurs when a borrower's scheduled payment is less than the interest due for that period. Instead of reducing the principal balance, the unpaid interest is added to the loan balance, causing the debt to grow over time even as payments are made. This can happen with certain adjustable-rate mortgages (ARMs) that have payment caps, graduated payment mortgages, or income-driven student loan repayment plans. For example, if your loan accrues $900 in interest per month but your minimum payment is only $600, the $300 shortfall is added to your balance. Negative amortization is considered risky because the borrower can end up owing significantly more than the original loan amount.

A balloon payment is a large lump-sum payment due at the end of a loan term where the loan has not fully amortized over the payment period. This occurs when the amortization period is longer than the loan term. For example, a loan may be structured with payments calculated over a 30-year amortization schedule but with a 7-year term, meaning the entire remaining balance becomes due after 7 years. Borrowers typically plan to refinance or sell the asset before the balloon comes due. Balloon payment loans can offer lower monthly payments initially but carry significant risk if the borrower cannot refinance or sell when the balloon becomes due.

Switching from monthly to bi-weekly mortgage payments accelerates loan payoff by effectively making one extra full payment per year. Because there are 52 weeks in a year, bi-weekly payments result in 26 half-payments, which equals 13 full monthly payments instead of the standard 12. On a $250,000 30-year mortgage at 6%, this strategy saves approximately $44,000 in total interest and reduces the loan term by about 4.5 years. The key is to ensure the lender applies each bi-weekly payment immediately to reduce the principal rather than holding the first half-payment until the full monthly amount is received. Some lenders offer formal bi-weekly programs; others allow it informally.

The primary differences between a 15-year and 30-year amortization are the monthly payment amount, total interest paid, and the speed of equity building. A 30-year mortgage has lower monthly payments but results in far more interest paid over the life of the loan. A 15-year mortgage has higher monthly payments but typically offers a lower interest rate and dramatically less total interest. For example, a $300,000 mortgage at 6% for 30 years costs $347,515 in total interest, while the same loan at 5.5% for 15 years costs only $143,739 in interest — a savings of over $200,000. The 15-year borrower also builds equity roughly twice as fast.

Refinancing replaces your existing mortgage with a new loan, effectively resetting your amortization schedule. This means you start over with a new principal balance, a new interest rate, and a new term — typically 30 years. If you have been paying a mortgage for 10 years and refinance into a new 30-year loan, you are now committed to 30 more years of payments. Even if the new rate is lower, the additional 10 years of payments may result in more total interest than simply continuing with the original loan. A refinance makes the most financial sense when the rate reduction is substantial, the break-even period is short, and you do not significantly extend the remaining term.

The amortization period is the total length of time it would take to pay off the loan in full at the scheduled payment amount. The loan term is the length of the current contract or agreement with the lender. These two figures are identical for most standard US mortgages — for example, a 30-year fixed mortgage has both a 30-year term and a 30-year amortization period. However, in Canada and with some commercial real estate loans, the amortization period may be 25 years while the term is only 5 years. At the end of the 5-year term, the borrower must renew or refinance the remaining balance — which is substantial since only 5 years of a 25-year amortization has elapsed.

You can find your remaining loan balance in several ways. First, check your most recent mortgage or loan statement — lenders are required to report the current outstanding principal balance. Second, use an amortization calculator and input your original loan details, then navigate to the payment number corresponding to where you are in the loan term. Third, contact your lender directly and request a payoff quote, which will include the outstanding principal plus any accrued interest and fees needed to fully close the loan. Online amortization calculators can also generate a full schedule instantly so you can see the balance at any point in the loan's life.

Prepayment penalties on mortgages were once common but have become less so following the Dodd-Frank Act and CFPB regulations. For Qualified Mortgages originated after January 2014, prepayment penalties are largely prohibited or heavily restricted. However, some non-Qualified Mortgage products and older mortgages may still carry prepayment penalty clauses. These penalties typically apply during the first few years of the loan and may be a percentage of the remaining balance or a set number of months of interest. Always review your loan agreement for a prepayment penalty clause before making large extra payments or paying off the loan early. If a penalty applies, calculate whether the interest savings outweigh the penalty cost.

There are two key differences in how mortgages amortize in Canada versus the United States. First, compounding frequency: US mortgages compound monthly, while Canadian mortgages compound semi-annually by law. This means the effective annual rate on a Canadian mortgage is slightly different even if the stated rate is the same, and the payment calculation formula must be adjusted accordingly. Second, loan term vs amortization period: US mortgages typically have matching terms and amortization periods (e.g., 30-year fixed), while Canadian mortgages commonly have short terms (1–5 years) with longer amortization periods (up to 25 or 30 years), requiring the borrower to renew the mortgage at the end of each term at prevailing rates.

Yes. Under the federal Truth in Lending Act (Regulation Z), lenders are required to provide borrowers with key loan disclosures, and most will provide a complete amortization schedule upon request. For mortgages, you should receive a Loan Estimate early in the application process and a Closing Disclosure before closing, both of which include payment information. For a full month-by-month amortization table, you may need to request it specifically from your lender or servicer. Alternatively, any accurate online amortization calculator can generate the same schedule if you input your loan's original principal, interest rate, and term. The schedules should match unless extra payments or rate adjustments have occurred.

A fully amortizing loan is one in which the regular scheduled payments are designed to pay off the entire loan balance — both principal and interest — by the end of the loan term, leaving a zero balance. Each payment covers the accrued interest for that period and reduces the principal by the remaining amount. Most conventional mortgages, auto loans, and personal loans are fully amortizing. This is in contrast to interest-only loans, where payments cover only interest and do not reduce the principal, or balloon loans, where a large lump sum remains due at the end of the term. Fully amortizing loans provide predictable payment schedules and guaranteed payoff dates.

An interest-only mortgage is a home loan where the borrower pays only the interest accrued each month for a set initial period — typically 5 to 10 years — without reducing the principal balance. After this interest-only period ends, the loan converts to a fully amortizing schedule for the remaining term, resulting in significantly higher monthly payments since the original principal must now be paid off in a shorter time. Interest-only mortgages offer lower initial payments and can make sense for certain investment strategies or high-income borrowers with variable income, but they carry the risk that the borrower builds no equity during the interest-only phase and faces payment shock when the loan converts.

Home equity is the difference between your home's market value and your outstanding mortgage balance. Amortization affects equity by slowly reducing your mortgage balance over time. In the early years of a mortgage, equity builds slowly because most of each payment goes to interest. As the loan ages and the principal balance decreases faster, equity accumulates more rapidly. For example, on a $300,000 30-year mortgage at 6%, after 5 years you have paid about $22,000 in principal despite making $113,760 in total payments. After 20 years, you have built roughly $134,000 in principal equity. Market appreciation can increase equity faster, while market declines can reduce it even as you pay down the loan.

Missing a loan payment has several consequences that vary by lender and loan type. Most lenders offer a grace period of 10 to 15 days after the due date before charging a late fee, typically 3–5% of the payment or a flat fee. After 30 days past due, the delinquency may be reported to credit bureaus, damaging your credit score. After 90–120 days, the loan may enter default, triggering collection efforts and potentially foreclosure on secured loans like mortgages. The missed interest accrues on top of the existing balance. On some loan types, missed payments can trigger negative amortization. Always contact your lender proactively if you anticipate difficulty making a payment — many offer hardship programs or deferment options.

Interest on an amortizing loan is calculated each period by multiplying the current outstanding principal balance by the periodic interest rate. For a monthly loan, the periodic rate is the annual interest rate divided by 12. For example, if your remaining balance is $180,000 and your annual rate is 5%, your monthly interest charge is $180,000 × (0.05 / 12) = $750. Your total payment minus this interest amount is applied to principal: if your payment is $1,200, then $750 goes to interest and $450 reduces the balance to $179,550. The next month's interest is calculated on $179,550, resulting in a slightly lower interest charge and a slightly larger principal reduction. This process repeats until the balance reaches zero.

A 1% difference in interest rate has a substantial impact on total interest paid over the life of a loan. On a $300,000 30-year mortgage, the difference between a 5% and 6% rate is approximately $63,000 in total interest. At 5%, the monthly payment is about $1,610 and total interest is roughly $279,767. At 6%, the payment is $1,799 and total interest is approximately $347,515. On a $30,000 auto loan for 60 months, a 1% rate difference adds about $775 in total interest. The longer the loan term and the larger the principal, the greater the impact of even a small rate difference. This is why shopping for the lowest possible rate is one of the highest-value actions a borrower can take.

Adjustable-rate mortgages (ARMs) amortize in a more complex way than fixed-rate loans because the interest rate — and therefore the monthly payment — can change at set intervals. A 5/1 ARM, for example, has a fixed rate for the first 5 years, then adjusts annually. During the fixed period, amortization works exactly like a fixed-rate mortgage. When the rate adjusts, the lender recalculates the monthly payment based on the new rate and the remaining balance and term. If the rate increases, the payment increases. If the rate decreases, the payment decreases. ARMs can result in negative amortization if they have payment caps that prevent the payment from covering accrued interest when rates rise sharply.

A graduated payment mortgage (GPM) is a type of fixed-rate mortgage where payments start low and increase at a scheduled rate, typically for the first 5 to 10 years, then level off for the remainder of the term. The concept is designed for borrowers who expect their income to grow over time and need lower payments early in the loan period. In the early years of a GPM, payments may be so low that they do not cover all the accrued interest, resulting in negative amortization — the loan balance actually grows before payments catch up. Despite this temporary balance growth, GPMs are fully amortizing: by the end of the term, all principal and interest are paid in full.

Federal student loans typically amortize using the same basic formula as other installment loans — each monthly payment covers accrued interest first, with the remainder applied to principal. Under the standard 10-year repayment plan, loans are fully amortized with equal monthly payments. Income-driven repayment plans (IDR), however, calculate payments as a percentage of discretionary income rather than based on the amortization formula. If the IDR payment is less than the monthly interest accrual, negative amortization occurs and the balance grows. After 20–25 years on an IDR plan, any remaining balance may be forgiven, though the forgiven amount was historically taxable income. Payments during deferment do not amortize the loan; interest continues to accrue and may be capitalized.

Recasting (also called re-amortization) is when a borrower makes a large lump-sum payment toward their mortgage principal, and the lender then recalculates — or recasts — the monthly payment based on the new lower balance while keeping the original loan term and interest rate unchanged. This results in a lower monthly payment for the remainder of the loan. Recasting is different from refinancing: there is no new loan, no credit check, no appraisal, and minimal fees (typically $150–$500). Not all lenders offer recasting, and it is generally not available on FHA or VA loans. Recasting is ideal for borrowers who receive a windfall — such as an inheritance or bonus — and want to reduce their monthly obligations without refinancing.

Yes, but you must explicitly instruct your lender to apply extra payments to the principal balance and not to future scheduled payments. Many lenders, when they receive an overpayment, will apply the excess to the next month's payment — which means you effectively skip a payment rather than reducing the principal. To ensure proper application, write "apply to principal" on the check memo, use your lender's online portal's dedicated principal payment option, or call to confirm the application. Some lenders require a separate transaction for principal-only payments. Always check your next statement to verify the extra payment was applied correctly. Misapplied extra payments fail to generate the interest savings that make early payoff strategies effective.

Simple interest is calculated on the original principal only, without compounding. For example, a $10,000 loan at 5% simple interest for 3 years costs $1,500 in total interest ($10,000 × 5% × 3). Amortized interest, while still calculated on the outstanding balance each period, creates a different dynamic because the balance changes each month as payments are made. The total interest paid on a fully amortizing loan is higher than simple interest on the same principal because interest continues to accrue on the outstanding balance until it reaches zero. Some auto loans use simple interest, meaning extra payments immediately reduce the principal and lower all future interest charges. Mortgages and most installment loans use amortized (compound) interest.

Only the interest portion of your mortgage payment may be deductible for federal income tax purposes, not the principal reduction. The IRS allows homeowners to deduct mortgage interest on loans up to $750,000 (for mortgages originated after December 15, 2017) if they itemize deductions. Because amortization front-loads interest in early years, the tax deduction is highest at the start of the loan and decreases each year as the interest portion shrinks. However, following the 2017 Tax Cuts and Jobs Act, the standard deduction increased significantly, meaning most taxpayers no longer benefit from itemizing. Consult a tax professional to determine whether your mortgage interest deduction exceeds the standard deduction threshold before planning around this benefit.

A loan amortization calculator is used to compute the monthly payment on an installment loan, generate a full amortization schedule showing the principal and interest breakdown of every payment, calculate the total interest paid over the life of the loan, and determine the remaining balance at any point in the loan. It is also used to model the impact of extra payments — showing how much time and money can be saved by paying more each month. Borrowers use amortization calculators when shopping for mortgages, comparing loan terms, evaluating refinancing scenarios, planning for early payoff, and understanding the true cost of borrowing beyond just the monthly payment amount.

To compare two loan offers using amortization, input each loan's principal, interest rate, and term into an amortization calculator and compare: (1) the monthly payment — the immediate cash flow impact; (2) total interest paid — the true cost of each option; (3) the amortization schedule — to understand how quickly equity builds; and (4) break-even point if considering a lower rate with higher closing costs. For example, Offer A may have a 5.5% rate with $3,000 in closing costs, while Offer B has 5.75% with zero closing costs. The amortization schedules will show which option saves more money depending on how long you plan to keep the loan. Always compare offers on the same principal and term for an apples-to-apples analysis.