Amortization Calculator

Amortization is the process of paying off a debt over time in regular installments. Each installment consists of two things: payment of interest that has accrued since the last installment, and reduction of the principal amount owed.

This calculator will convert a loan into an amortization schedule. After you input the loan amount, interest rate and term, it will show you the monthly payment, total interest paid as well as a detailed breakdown of each payment showing how much goes to interest and how much goes to principal. You can also leave one of the four fields blank for the calculator to calculate that value.

What a repayment schedule shows:

An amortization schedule, sometimes called an amortization table, lists each payment over the life of a loan. For each payment, it breaks down the amount into interest and principal, and shows the remaining balance after each payment.

This distribution is not uniform. At the beginning of the loan relationship, the remaining amount is high so that a large part of each installment is used for interest while only a small part contributes to amortization. With decreasing remaining amounts, the interests decrease and a larger proportion of the same installment goes into amortization. Towards the end of the loan relationship, almost all of the amount is an amortization. The observation of this change is the core of an amortization plan, and that's exactly why the remaining amount decreases slowly at first and then accelerates increasingly.

How to use this calculator:

Start with three known values: loan amount, annual interest rate and term length. You'll immediately get the monthly payment and a complete repayment schedule.

You can also work backwards. Leave the loan amount blank and enter how much you can afford to see how much money you could borrow. Leave the interest rate blank to find out what the interest rate would be for a particular payment. Leave the term blank to see how long it will take to pay off a loan with a certain payment. Enter three of the four values, and the calculator will calculate the missing value.

Two toggles can speed up repayment. Turn on the extra payments option to add a fixed amount each month to your capital repayments and watch interest and time drop. Turn on the bi-weekly comparison to see what effect it has if you pay half of your monthly rate every two weeks; this will result in an extra payment each year.

Amortization formula

The fixed monthly rate is based on a standard amortization formula that evenly spreads the loan amount over the entire term of the loan.

M is the monthly payment amount, P is the principal loan amount, r is the interest rate per period and n is the total number of payments. For loans with monthly repayments, the interest rate per period is the annual interest rate divided by 12, and n is the term in years multiplied by 12. A 10 year loan with monthly repayments has 120 payments.

Suppose you take out a $10,000 loan at an annual interest rate of 6% for 5 years. In this case, r is the result of dividing 0.06 by 12, and n is 60:

The monthly rate is approximately $193.33. Over the course of 60 payments you will pay back a total of about $11,600, of which nearly $1,600 is interest. The following table lists each symbol and its value in this example.

How run time affects the overall picture

The term is the most important factor in an amortization schedule. The longer the term, the lower the individual payments but the longer it takes to pay off the interest, which ultimately leads to higher overall costs. A shorter term means higher monthly costs, but allows for faster debt payoff and substantial savings on interest as the amount subject to interest goes down more quickly.

The same trade-off applies to mortgages: a 30-year loan has lower monthly payments but slower principal reduction and higher interest expense over the life of the loan; whereas a 15-year loan has much faster principal reduction, allowing you to build equity in your home more quickly, though at higher monthly payments.

Extra repayments: a faster way.

Extra payments are a secret weapon in amortization. A standard amortization schedule assumes that you will only pay the set amount, but there is no rule that says you can't pay more. Every extra dollar goes straight to principal, reducing the remaining balance subject to interest, and those resulting interest savings add up over the remainder of your amortization period.

Bi-weekly payments can have the same effect without feeling like you're paying extra. If you pay half of your monthly payment every two weeks, that adds up to 26 half-payments in a year, which is equivalent to making 13 monthly payments instead of 12. This extra amount paid annually can result in long-term loans being paid off months or even years earlier.

Which loans are subject to amortisation?

Amortization schedules are for fixed rate loans with full amortization where the payment amount remains constant and the remaining balance is reduced to zero according to plan. Mortgages, auto loans, personal loans, and most student loans fall into this category.

However, some debts are excluded. Loans that only pay interest, balloon loans, variable mortgages and credit cards or revolving accounts are not fully amortizing loans and therefore cannot be described by a fixed repayment schedule. The standard repayment schedule also does not take into account any fees and will only treat them as additional repayments if you tell the calculator so.

Another form of repayment...

In accounting this term has a related but different meaning: The cost of intangible assets such as patents or copyrights is spread out over their useful life rather than being booked as an expense all at once. This is more like depreciation than amortization, and that's not what this calculator calculates. Here "amortization" always refers to the repayment of a loan.

This calculator is for educational and planning purposes only. It does not take into account any fees, insurance or changes in interest rates on variable rate loans. The actual repayment amount will depend on the lender and your creditworthiness. Please read the loan documents carefully and consult a qualified professional before taking out a loan.