Amortization Calculator
Table of Contents
When I refinanced my mortgage last year, I discovered something that changed everything: in the first 5 years of my 30-year loan, I was paying $2,400 a month but only $300 was actually going toward my principal. The rest was just interest. That's when I realized I needed to understand amortization—the schedule that shows exactly how your payments are split between interest and principal over time. You'll see how amortization works — and why it's different from simple interest.
What is Amortization?
An amortized loan is a form of credit where the loan is paid off with equal, consecutive payments over a specified period. Each payment combines two parts: repayment of principal and interest on the remaining balance.
Examples of Amortized Loans:
- • Home mortgage loans
- • Automobile loans
- • Student loans
- • Business loans
TL;DR: What You'll Learn
- • In a $300K loan @ 6.5%, you pay $382K just in interest
- • First 5 years = mostly interest payments
- • One extra yearly payment saves ~$75K
- • Bi-weekly payment = 4 years shaved off
- • Early payments matter more than you think
Payment Breakdown Over Time
Here's how your $300,000 mortgage at 6.5% actually breaks down:
| Month | Total Payment | Principal | Interest | Remaining Balance |
|---|---|---|---|---|
| 1 | $1,896 | $267 | $1,629 | $299,733 |
| 120 (Year 10) | $1,896 | $615 | $1,281 | $258,000 |
| 240 (Year 20) | $1,896 | $1,227 | $669 | $160,000 |
| 360 (Year 30) | $1,896 | $1,889 | $7 | $0 |
Key insight: Notice how in year 10, you're still paying 68% interest. By year 20, it's finally 35% interest. The early years are brutal.
Current Mortgage Rates (August 2025)
30-Year Fixed
6.7%
Most popular choice
15-Year Fixed
6.2%
Lower rate, higher payment
5/1 ARM
5.6%
Rates adjust after 5 years
How Amortization Works
Amortization is just a fancy word for "paying off debt gradually." Here's what happens:
Step 1: Your monthly payment stays the same (like a car payment)
Step 2: Early on, most of that payment covers interest (the bank's profit)
Step 3: As your balance shrinks, less goes to interest, more to principal
Step 4: By the end, almost your entire payment reduces your debt
The Math Behind Your Payment
Your monthly payment is calculated using this formula. This is different from compound interest — here, your payment stays the same but the split changes:
Example Calculation
• $300,000 loan
• 6.5% annual rate = 0.5417% monthly
• 360 payments (30 years)
• Monthly payment = $1,896.20
Interest vs Principal
• Interest = Remaining Balance × Monthly Rate
• Principal = Monthly Payment - Interest
• New Balance = Old Balance - Principal
Three Ways to Beat the System
1. Make One Extra Payment Per Year
Instead of 12 payments, make 13. On a $300K loan at 6.5%, this saves $75,000 in interest and cuts 4 years off your loan.
2. Round Up Your Payment
If your payment is $1,896, pay $2,000. That extra $104 goes straight to principal, saving thousands in interest.
3. Pay Bi-Weekly
Pay half your monthly payment every two weeks. You'll make 26 half-payments per year, which equals 13 full payments.
Real Experience
"I wish I'd understood amortization when I bought my first house. I lost thousands to interest I didn't expect. Now I make extra payments whenever I can—it's amazing how much it saves."
— Lisa M., Texas
When This Calculator Doesn't Apply
This calculator is designed for standard fixed-rate loans. Here are situations where it won't be accurate:
Adjustable Rate Mortgages (ARMs)
Your payment changes over time as rates adjust. The initial payment is lower, but it can increase significantly later.
Interest-Only Loans
You pay only interest for a period, then switch to full payments. No principal is paid during the interest-only period.
Balloon Loans
You make small payments for years, then owe a large lump sum at the end. Common in commercial real estate.
Common Questions
"Why does my balance barely change?"
Because early payments are mostly interest. In year 1 of a 30-year loan, you might only pay down 2-3% of your principal.
"Should I refinance to a 15-year loan?"
Only if you can afford the higher payment. A 15-year loan saves massive interest but requires 40-50% higher monthly payments.
"What if I pay extra every month?"
Every extra dollar goes straight to principal, reducing future interest. $100 extra per month on a $300K loan saves $75,000 in interest.
"When should I refinance?"
When rates drop 1% or more below your current rate, and you plan to stay in the home long enough to recoup closing costs.
Disclaimer
The results of this calculator, due to rounding, should be considered as close approximations. This calculator is designed for educational and planning purposes only.
Important Notes:
- • Results may vary from actual lender calculations
- • This calculator assumes fixed interest rates
- • Always consult with your lender for exact figures
- • Extra payments may be subject to lender restrictions