Amortization Calculator
Generate a complete loan amortization schedule showing every payment's principal and interest breakdown.
| # | Payment | Principal | Interest | Balance |
|---|
The Formula
Principal = Payment − Interest
New Balance = Balance − Principal
Repeat for each of n payments
Monthly rate = 0.07/12 = 0.005833
Payment = $1,996
Interest = $300,000 × 0.005833 = $1,750
Principal = $1,996 − $1,750 = $246
What Is an Amortization Schedule?
An amortization schedule is a complete breakdown of every loan payment from the first to the last, showing exactly how much goes toward principal and how much goes toward interest each month. It is one of the most useful tools for understanding the true cost of a loan. Most people are surprised to see how much of their early payments go toward interest rather than actually paying down the balance — and how much that changes over time.
Why Early Payments Are Mostly Interest
On a typical fixed-rate loan, your monthly payment stays the same throughout the loan term. But the split between principal and interest shifts dramatically over time. In the early months, the outstanding balance is highest, so interest charges are highest. As the balance drops, less interest accrues and more of your payment goes toward principal. On a 30-year $300,000 mortgage at 7%, your first payment of around $1,996 sends roughly $1,750 to interest and only $246 toward principal. By the final payment, almost all of it is principal.
How Extra Payments Change the Picture
Making extra principal payments — even modest ones — can dramatically cut your loan term and total interest. On that same 30-year $300,000 mortgage, adding just $200/month to the principal shaves about 6 years off the loan and saves roughly $70,000 in interest. The earlier in the loan you make extra payments, the greater the impact, because you are reducing the balance that interest is calculated on. Some borrowers round up their payment, make one extra payment per year, or apply work bonuses directly to principal.
Refinancing and Amortization
Refinancing starts a new amortization clock. Even if you lower your rate significantly, restarting a 30-year term when you are already 10 years into a loan means you could end up paying more total interest over the life of both loans combined. Always run the numbers — compare the total cost of your current loan versus the total cost of the new loan from today through payoff, not just the monthly payment difference.
Frequently Asked Questions
How can I pay off my loan faster?
The most effective method is making extra principal payments, especially early in the loan when they have the most impact. Other approaches include making biweekly payments instead of monthly (which results in one extra full payment per year), rounding up your payment, or applying any windfalls like tax refunds or bonuses directly to principal. Always confirm with your lender that extra payments go toward principal and not future payments.
Does refinancing reset my amortization?
Yes. When you refinance, you start a fresh amortization schedule on the new loan. Even at a lower interest rate, restarting a 30-year term 10 years into a loan means you will be paying for 40 years total. To avoid this, refinance into a shorter term, or keep making the same monthly payment you were making before — the extra amount goes to principal and speeds up payoff.
What is the difference between amortization and depreciation?
Amortization in finance refers to paying off a loan through regular scheduled payments. Depreciation is an accounting concept that spreads the cost of a physical asset (like equipment or a building) over its useful life. Both involve spreading a cost over time, but amortization applies to debt while depreciation applies to assets.
How do I read an amortization schedule?
Each row in the schedule represents one payment period. Columns typically show the payment number, payment date, total payment amount, how much goes to interest, how much goes to principal, and the remaining loan balance after that payment. Reading down the schedule, you will see the interest portion shrink and the principal portion grow with each successive payment.
Is it always worth making extra mortgage payments?
Not always. If your mortgage rate is low (say, under 4%) and you have high-interest debt or no emergency fund, paying down the mortgage early may not be the best use of extra money. However, if your mortgage is your only debt and your rate is above 5–6%, extra payments are often a guaranteed return equal to your interest rate — which is hard to beat risk-free.