Amortization Calculator

Understanding Loan Amortization

The amortization formula calculates equal monthly payments that cover both principal and interest, ensuring the loan reaches zero at the end of the term:

M = P × [r(1+r)^n] / [(1+r)^n - 1]

Where P = principal, r = monthly rate (annual/12), n = total months.

How Amortization Differs Internationally

The Front-Loading Effect: Why Early Payments Are Mostly Interest

The most surprising thing about amortization is how slowly your balance falls in the early years. On a $300,000 mortgage at 7% for 30 years, your first monthly payment of $1,996 breaks down like this: $1,750 goes to interest and only $246 reduces your principal. By year 15 (payment 180), interest still takes most of it: $1,299 to interest and $697 to principal. Principal only overtakes interest at payment 242, in year 21. This "front-loading" is not a trick — it is a mathematical consequence of the PMT formula. Because the interest owed each month is the outstanding balance × monthly rate, and the balance starts large, interest is naturally large at the start.

How Extra Payments Can Save You Tens of Thousands

Because early payments pay so little principal, even one extra payment per year — or a small addition to each monthly payment — can dramatically cut total interest and shorten the loan. On the same $300,000 / 7% / 30-year loan, adding just $200 extra per month pays the loan off in 275 payments (about 23 years) and saves roughly $116,600 in total interest. The schedule below shows your accelerated payoff date automatically if you use this calculator with a shorter term.

Balloon Payments and Interest-Only Periods

Not all loans are fully amortizing. Some UK mortgages and many commercial loans include an interest-only period — you pay only interest for 5–10 years, then the full principal is due (as a "balloon payment") or you switch to a standard amortizing schedule. This makes payments lower initially but means your balance does not decrease at all during the interest-only window. In the UK, many buyers use "repayment" (amortizing) mortgages but are offered interest-only by some lenders — always confirm which type you have.

Worked Example: $200,000 at 6.5%, 25 Years

Using M = P × [r(1+r)ⁿ] / [(1+r)ⁿ−1]: monthly rate r = 6.5%/12 = 0.5417%, n = 300 payments. M = $200,000 × (0.005417 × 1.005417³⁰⁰) / (1.005417³⁰⁰ − 1) = $1,350.41/month. Total paid = 300 × $1,350.41 ≈ $405,124. Total interest = $405,124 − $200,000 = $205,124 — you pay the loan value again in interest over 25 years. Reducing to 20 years would raise monthly payments to $1,491.15 but cut total interest to $157,875, saving about $47,249.