Amortization Calculator
This amortization calculator shows how every payment of a loan splits into interest and principal. Example: 200,000 at 6% over 30 years costs 1,199.10 a month and 231,676.38 in interest over 360 payments.
Source: Brealey/Myers/Allen: Principles of Corporate Finance – annuity formula and amortizing loans; presentation: Wikipedia “Amortization calculator”. Updated: .
How it is calculated
Amortization means paying off a loan in equal instalments, where each payment first covers the interest on the remaining balance and the rest reduces the debt. Because the balance falls, the interest share shrinks with every payment and the principal share grows – slowly at first, quickly towards the end.
Formula
Payment = P × i ÷ (1 − (1 + i)−n), with loan amount P, monthly rate i = annual rate ÷ 12 and n monthly payments. For each month: interest = balance × i, principal = payment − interest, new balance = balance − principal.
Worked example
200,000 at 6% over 30 years: i = 0.5%, n = 360, payment 1,199.10. In the first month 1,000.00 is interest and only 199.10 is principal, leaving 199,800.90. Over the whole term you pay 431,676.38, of which 231,676.38 is interest – more than the loan itself.
What extra payments do
Every extra unit of money reduces the balance at once and saves interest in all later months. Paying 200 more each month clears the same loan after 252 instead of 360 payments and saves 79,800.51 in interest. A shorter term works the same way: over 15 years the payment rises to 1,687.71, but total interest falls to 103,788.46.
- Switch the schedule to monthly rows to see every single payment.
- The yearly view adds up twelve payments: interest paid, principal repaid and the balance at year end.
Frequently asked questions
What is an amortization schedule?
A table listing every payment of a loan with its interest part, its principal part and the balance that remains afterwards. It shows exactly when the loan is paid off and how much interest you pay in total.
How is the monthly payment calculated?
With the annuity formula: loan × i ÷ (1 − (1 + i)^−n). For 200,000 at 6% over 360 months that is 1,199.10.
Why is so much of the first payment interest?
Interest is charged on the full balance. In the example the first month costs 200,000 × 0.5% = 1,000.00 in interest, so only 199.10 of the payment reduces the debt.
How much do extra payments save?
In the example, 200 extra per month shortens the loan from 360 to 252 payments and saves 79,800.51 in interest. Check your contract for prepayment charges first.
Sources and legal basis
- Brealey/Myers/Allen: Principles of Corporate Finance – annuity formula and amortizing loans; presentation: Wikipedia “Amortization calculator”
- Wikipedia “Amortization schedule” – structure of a repayment plan (interest, principal, remaining balance per installment)
As of: · Editorial policy
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