Amortization Calculator

Amortization Calculator Results Explained

Amortization describes how your monthly loan payments are split into two chunks: one that goes to the lender (interest), and one that’s applied to paying down the balance on your loan (principal). In other words, when you make a loan payment, it doesn’t all go toward your loan balance. Some of it goes to the lender as payment for letting you borrow the money, and the rest is what actually pays off your loan.

To use the calculator to see how amortization works for your loan, enter the following information:

  • Loan amount: How much you’re borrowing.
  • Loan term: How long you’ll take to pay off the loan. 
  • Interest rate: The percentage of the loan amount a lender charges you for borrowing money.

Based on what you enter, you’ll see the following results:

  • Monthly payment: This is the total amount you’ll send to the lender each month.
  • Total paid: This is how much you’ll pay over the entire loan, including how much you originally borrowed, plus any interest. 
  • Total interest paid: This is how much interest you’ll pay over the life of the loan. 

What Is an Amortization Schedule?

An amortization schedule shows you how each payment is split up and sent to the lender over time. These numbers change, because the interest you’re charged depends on your balance, and your balance decreases over time. 

You’ll pay the most amount of interest with each payment at the beginning of the loan, and it will decrease over time. On a positive note, by the time you get close to paying off the loan, most of your payment will actually go toward paying down the balance. You’ll see faster progress in paying off your loan once you get closer to your last payments. 

How Is a Loan Amortization Schedule Calculated?

Your loan amortization schedule is calculated month by month, because the percentage of your payment that goes toward interest and principal changes each month, based on your balance. Your balance changes each month, and so the interest and principal payment will need to be recalculated for each successive month. 

How Can You Calculate an Amortization Schedule on Your Own?

It might help to see how this works with an actual example. Suppose you want to get LASIK surgery and need to take out a $4,000 personal loan for 12 months at a rate of 10%. To calculate the amortization schedule by hand, you’ll need to know three things: 

Here’s how to calculate your amortization schedule, step by step:

  • Find your monthly interest rate: Divide your interest rate by 12 to get your monthly interest rate. In this case, it’s 0.008333 (0.10/12). 
  • Calculate your interest payment: Multiply your monthly interest rate by your current balance. Here, it’s $33.33 (0.008333 x $4,000). 
  • Calculate your principal payment: Subtract your interest payment from your total monthly payment to see how much goes toward paying down your loan. In this example, it’s $318.33 ($351.66 – $33.33). 
  • Calculate your remaining balance: Subtract your principal payment from your current balance to get your new remaining balance. Here, it’s $3,681.67 ($4,000 – $318.33). 

Repeat these four steps for each month, using your remaining balance from this month for each successive month. For example, in February, you’ll base these calculations off January’s remaining balance. 

Month Total Monthly Payment Interest Payment Principal Payment Remaining Balance
January $351.66 $33.33 $318.33 $3,681.67
February $351.66 $30.68 $320.98 $3,360.69
March $351.66 $28.01 $323.65 $3,037.03
April $351.66 $25.31 $326.35 $2,710.67
May $351.66 $22.59 $329.07 $2,381.60
June $351.66 $19.85 $331.81 $2,049.78
July $351.66 $17.08 $334.58 $1,715.20
August $351.66 $14/29 $337.37 $1,377.83
September $351.66 $11.48 $340.18 $1,037.65
October $351.66 $8.65 $343.01 $694.63
November $351.66 $5.79 $345.87 $348.76
December $351.66 $2.91 $348.75 $0

How to Calculate Amortization With an Extra Payment

If you make an extra payment on your loan, your lender could handle it in a few ways. It may apply some of that payment to any fees or interest that are outstanding on the loan, much like when it tallies your interest day by day and you pay mid-month. Or your lender could also just apply any extra payments straight to the remaining balance. 

In any case, check with your lender to learn its policies. If it applies extra payments straight to the balance, your job is easy: Simply subtract the extra payment from the remaining balance for that month and use the new number going forward. 

Mortgage Amortization

Mortgages are a bit more complex, because your monthly payment is split into a few more buckets: principal and interest (which we’ve already discussed), along with taxes and insurance.  

Your taxes and insurance are generally held in what’s called an escrow account. It’s a separate account that most lenders use to pay your property taxes and homeowners insurance each year. That way, your lender is sure that these things will be paid, which is an important factor for your lender because it technically also owns part of the property along with you while your loan is outstanding.

The amount lenders hold back for escrow is generally the same amount each month, but your lender recalculates it every year or so as your tax and insurance bills change. To account for this in your amortization schedule, simply add two more columns (taxes and insurance), and write in how much your lender withholds. 

Then, to calculate your new principal payment, you’ll subtract interest, taxes, and insurance from your monthly payment. Next, subtract your principal payment from your current balance to get your new remaining balance.    

Difference Between Depreciation and Amortization

Depreciation measures how much something declines in value over time. You might see this line item in your monthly statement if you lease a car

In this case, your lender estimates how much the car will lose value while you have it. For example, they might guesstimate that the car will be worth $5,000 less when they get it back. If you signed a 36-month lease, that means the car is losing value at a rate of $138.88 per month. 

The lender then can pass this charge to you by splitting your monthly payment into a depreciation charge, similar to the way in which the lender carves out part of your payment just for interest. 

How Can Using an Amortization Calculator Help Me?

Although it may just seem like a jumble of numbers, there’s actually a lot of helpful data you can get from an amortization schedule. Here are a few questions it can help you answer:

  • How will making an extra payment affect your loan balance?
  • How much total interest will you pay over the life of the loan?
  • How much of your payment is actually going toward paying off the loan?
  • How much of your home (or car, or boat) will you own over time?
  • How does changing the term length, amount borrowed, or interest rate affect your monthly payment and the total amount of interest you pay?

Frequently Asked Questions (FAQs)

What kinds of loans are amortized?

Most loans that you pay in installments, such as a mortgage or a personal or car loan, are amortized loans. Credit cards are not amortized, because they are revolving loans; the amount due changes from month to month.

What is a partially amortized loan?

A partially amortized loan occurs when a portion of the loan is amortized, but there may be a lump sum or "balloon" payment due after the amortized portion of the loan has been paid off.

What is negative amortization?

Negative amortization is a loan situation in which the payments are not enough to keep up with the interest that is accruing. With this type a loan, your debt can go up instead of down. Before the housing crisis of 2008, some people bought more expensive houses than they could afford by getting negative amortization loans with the idea that they could eventually refinance with a regular loan.

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