Amortization Calculator
Calculate your loan payments and see how your balance decreases over time. Perfect for mortgages, auto loans, personal loans, and any fixed-rate debt planning!
Understanding Loan Amortization
Amortization is the process of paying off a debt (like a mortgage or car loan) with regular payments over time. Each payment includes both principal and interest, with the proportion changing over the life of the loan.
How Amortization Works
In the early years of a loan, a larger portion of each payment goes toward interest rather than principal. As time passes, this ratio shifts, with more of each payment going toward reducing the principal balance. This happens because the interest is calculated on the remaining balance, which decreases with each payment.
The Amortization Formula
Amortization uses the following formula to calculate equal periodic payments:
Payment = P × [r(1+r)^n] ÷ [(1+r)^n - 1]
Where:
- P = Principal (loan amount)
- r = Periodic interest rate (annual rate divided by number of payments per year)
- n = Total number of payments
Key Factors Affecting Loan Payments
- Loan Amount: The principal amount borrowed
- Interest Rate: The annual percentage rate charged for borrowing
- Loan Term: The length of time to repay the loan completely
- Payment Frequency: How often you make payments (monthly, bi-weekly, etc.)
- Extra Payments: Additional amounts paid toward the principal
Payment Frequency Options
- Monthly: 12 payments per year (standard for most loans)
- Bi-weekly: 26 payments per year (every two weeks)
- Weekly: 52 payments per year
Changing your payment frequency can help you save on interest and pay off your loan faster. For example, bi-weekly payments result in one extra full payment per year compared to monthly payments.
The Power of Extra Payments
Making extra payments toward your loan principal can significantly reduce the total interest paid and shorten the loan term. Even small additional amounts can make a big difference over time.
For example, on a $300,000 30-year mortgage at 4% interest:
- Standard monthly payment: $1,432
- Add $100 extra per month: Saves approximately $30,000 in interest and pays off 4 years earlier
- Add $200 extra per month: Saves approximately $55,000 in interest and pays off 7 years earlier
Types of Loans That Use Amortization
- Mortgages: Home loans typically amortized over 15-30 years
- Auto Loans: Vehicle financing usually amortized over 3-7 years
- Personal Loans: Fixed-term loans usually amortized over 1-7 years
- Student Loans: Education debt often amortized over 10-25 years
- Business Loans: Commercial loans with various term lengths
Tips for Using This Calculator
- Enter your exact loan amount, interest rate, and term for accurate results
- Experiment with different extra payment amounts to see potential savings
- Try different payment frequencies to find what works best for your budget
- Use the start date feature to align payments with your income schedule
- Print or save your results for future reference and financial planning