How loan amortization works
Every fixed-rate loan follows the same mathematical pattern: your monthly payment stays the same throughout the term, but the split between principal and interest shifts dramatically over time. In month one of a 30-year mortgage, most of your payment goes to interest. By month 360, nearly all of it reduces your balance.
The calculation behind this is the standard amortization formula: your payment is set to a level that exactly exhausts the principal over n months at your interest rate. Each period, interest is charged on the remaining balance; everything left over chips away at what you owe.
The calculator runs this month-by-month loop for your full loan term and reports the results. Every number — monthly payment, total interest, payoff date — comes directly from this iteration, not from rounding shortcuts.
The real power of extra payments
Because interest is always calculated on the remaining balance, paying extra principal today saves you compounding interest on all future periods. A $200 extra payment in month one doesn’t save you $200 — it saves you $200 plus all the interest that $200 would have generated for the rest of the loan.
On a $400,000, 30-year loan at 6.5%, adding $300 per month cuts the total interest bill by over $100,000 and shortens the loan by roughly 7 years. The payoff is non-linear: the same $300 added to a 15-year loan at the same rate saves far less because there are fewer periods for compounding to work against you.
Use the Payoff Accelerator mode to see your exact savings from any extra monthly amount or lump-sum payment. The schedule updates live as you adjust.
When to refinance — and when not to
Refinancing replaces your current loan with a new one, typically at a lower rate or different term. The financial question is whether your interest savings over the remaining life of the loan outweigh the closing costs you pay upfront (usually 2–5% of the loan balance).
The breakeven point is the month when cumulative interest savings equal your closing costs. If you plan to stay in the home or hold the loan past that date, refinancing puts money in your pocket. If you expect to sell or pay off before breakeven, it costs you money.
A rate drop of 1% or more on a balance above $200,000 almost always breaks even within 2–3 years. A 0.25% drop may take 6–8 years to break even after costs. Use the Refinance Comparison mode to find your exact number.
15-year vs 30-year: the full picture
The 30-year mortgage wins on monthly cash flow; the 15-year wins on total cost and speed of equity building. The 15-year rate is typically 0.5–0.75% lower than the 30-year rate, which compounds the advantage further.
The right choice depends on what you’d do with the payment difference. If you invest the $500–$700 monthly saving from a 30-year into an index fund at historical market returns, you may come out ahead of the 15-year forced savings — especially in a low-rate environment. If the extra cash would be spent rather than invested, the 15-year’s discipline wins.
Use the 15 vs 30 Year Compare mode to see both scenarios side by side with your actual numbers, not hypothetical ones.
More housing calculators
Coming soon: mortgage payment calculator, auto loan calculator, and loan payoff tracker — all built on the same engine with their own pre-filled defaults.
- Savings Goal Calculator → Save for a down payment — find your monthly number and timeline.
- Compound Interest Calculator → Model how your down payment savings grow with interest.
Frequently asked questions
What is an amortization schedule?
An amortization schedule is a complete table of all loan payments from the first month through the last, showing how each payment splits between principal and interest. Early payments are heavily weighted toward interest; later payments go mostly to principal. The calculator above generates the full schedule and lets you download it as a CSV.
How do I calculate my monthly mortgage payment?
The standard formula is: M = P × [r(1+r)^n] / [(1+r)^n − 1], where P is the loan principal, r is the monthly rate (annual rate ÷ 12), and n is the number of monthly payments (term in years × 12). Enter your loan amount, interest rate, and term in the calculator above and it computes the payment instantly.
How much do extra payments save on a mortgage?
Even a modest extra payment reduces the principal faster, which lowers the balance on which future interest is charged. On a $300,000, 30-year loan at 6%, adding $200 per month cuts about 6 years 9 months (81 months) off the term and saves $91,173 in total interest — reducing the loan from $347,515 to $256,341 in interest. Use the "Payoff Accelerator" mode above to see the exact savings for your loan.
Should I refinance my mortgage?
Refinancing makes financial sense when your interest savings exceed the closing costs before you move or pay off the loan. The breakeven point is closing costs ÷ monthly savings. If you plan to stay in the home past that date, refinancing likely pays off. Switch to "Refinance Comparison" mode in the calculator to see your breakeven for any rate/term combination.
What is the difference between a 15-year and 30-year mortgage?
A 15-year mortgage has a higher monthly payment — roughly 45% more than a 30-year on the same balance — but you pay dramatically less total interest and build equity much faster. On a $300,000 loan at 6%, a 30-year costs about $347,000 in interest; a 15-year at 5.5% costs about $142,000. Use the "15 vs 30 Year" compare mode to run these numbers for your situation.
Worked examples
Standard 30-year loan — the amortization formula in action
$200,000 loan at 5.5% for 30 years. Shows the month-by-month interest/principal split and why early payments are interest-heavy.
Monthly payment
$1135.58
Total interest
$208,808
Total paid
$408,808
Loan term
30 years
Monthly payment is $1,135.58. Total interest over 30 years is $208,807 — more than the loan itself. Month-1 interest is $916.67 (81% of the payment); by month 360 the payment is almost entirely principal.
15-year vs 30-year on the same balance
Same $200,000 at 5.5%: compare the 15-year and 30-year schedules to show how cutting the term in half more than halves the total interest paid.
30-yr payment
$1135.58
15-yr payment
$1634.17
Extra per month
$498.59
Interest saved (shorter term)
$114,658
30-year payment: $1,135.58 / total interest $208,807. 15-year payment: $1,634.17 (+$498.59/mo) / total interest $94,151. Choosing 15 years saves $114,656 in interest — more than half the loan principal — in exchange for a 44% higher monthly payment.
Extra payment eliminating compound drag
$200,000 at 5.5% over 30 years, with $300/month extra from month 1. Demonstrates why prepayment in early months has outsized impact.
Payoff time
18 yr 7 mo
Time saved
11 yr 5 mo
Total interest
$119,457
Interest saved
$89,351
Adding $300/month cuts payoff from 360 months to 229 months (saving 131 months — nearly 11 years) and reduces total interest from $208,807 to $127,083, saving $81,724. The extra $300/month costs $38,700 over the shortened loan life but returns $81,724 in interest savings — a guaranteed 2.1× return on the extra principal.
Monthly payment on a $200,000 loan by rate and term
P&I only — excludes taxes, insurance, and fees. Source: standard amortization formula computed by this calculator.
| Term (months) | 4% | 5% | 6% | 7% | 8% |
|---|---|---|---|---|---|
| 120 mo | $2025 | $2121 | $2220 | $2322 | $2427 |
| 180 mo | $1479 | $1582 | $1688 | $1798 | $1911 |
| 240 mo | $1212 | $1320 | $1433 | $1551 | $1673 |
| 300 mo | $1056 | $1169 | $1289 | $1414 | $1544 |
| 360 mo | $955 | $1074 | $1199 | $1331 | $1468 |
Shorter term = higher payment but lower total interest. Rate has a larger effect on total cost than on the monthly payment amount alone.
What affects your loan outcome
Interest rate
The single largest driver of total interest cost. A 1% rate difference on a $300,000 loan changes total interest by roughly $60,000–$70,000 over 30 years. Rate also affects the payment-to-principal ratio: at higher rates, a larger share of each early payment goes to interest, leaving less to reduce the balance.
Loan term
Doubling the term (e.g., 15 to 30 years) roughly halves the monthly payment but dramatically increases total interest — often by 150–200%. The term determines how many periods compound interest charges accumulate. A shorter term also causes the amortization curve to pivot faster toward principal-reduction.
Loan amount (principal)
Payment and total interest scale almost linearly with principal. A $400,000 loan at the same rate and term pays roughly twice the monthly payment and twice the total interest of a $200,000 loan. Reducing the principal — through a larger down payment or a smaller purchase — is the most direct lever on both cost metrics.
Extra principal payments
Each dollar of extra principal paid today eliminates all future interest that would have compounded on that dollar. The earlier in the loan life the prepayment is made, the greater the savings — because more periods remain. Even a modest $100–$200/month extra can save several years and tens of thousands in interest on a 30-year loan.
Timing of prepayment
A given lump sum applied in year one saves more than the same amount applied in year 15, because the remaining loan life is longer and the compounding drag has more periods to be eliminated. Refinancing late in a loan term can be counterproductive for the same reason — it resets the amortization clock so interest-heavy early payments start again on the new loan.
Common loan calculator mistakes
- •Confusing APR with interest rate. The stated rate drives the payment formula; APR is higher and includes lender fees spread over the term. Always use the stated interest rate in the payment calculator — APR is for cross-lender cost comparison, not for computing the amortization schedule.
- •Ignoring the amortization reset when refinancing. A new loan restarts the schedule so the first years are again heavily interest-weighted. If you are 20 years into a 30-year mortgage, refinancing into a new 30-year means 20 more years of slow equity accumulation, even at a lower rate.
- •Evaluating only the monthly payment, not total interest. A longer term with a lower payment can cost far more over the life of the loan. A $300k loan at 6.5% costs $383k total in interest over 30 years vs $168k over 15 years. Total cost, not payment size, is the correct comparison metric for most borrowers.
- •Treating "interest saved" and "breakeven" as the same concept. Extra payments save interest unconditionally; refinancing saves interest only after the breakeven point is reached. These are different calculations requiring different time-horizon questions.
- •Making lump-sum prepayments without verifying no prepayment penalty applies. Most US/AU mortgages allow unlimited prepayments; UK fixed-rate mortgages during the fixed period often allow only 10% per year without an early repayment charge. Check your loan agreement before making large lump-sum payments.
Practical takeaways
- ✓Run the amortization schedule before you agree to a loan. The schedule shows exactly what you are committing to — the monthly payment is just the headline number. Total interest is the real cost.
- ✓Use the compare-terms mode to find the crossover point between 15-year and 30-year affordability. The payment difference is fixed; the interest savings accumulate for 30 years. Your decision changes if you factor in what you would do with the payment difference.
- ✓Check the schedule at year 5 and year 10 to estimate your equity position — useful for planning a refinance, a sale, or a HELOC application. Equity = current appraised value minus outstanding balance.
- ✓If you are planning extra payments, start in month 1 — the compounding effect is maximum at the beginning. Even small early prepayments outperform larger prepayments made later in the loan life.
- ✓Download the CSV schedule and import it into a spreadsheet to layer in your specific tax situation, rental income, or investment return assumptions. The calculator handles the amortization math; the financial decision context is yours to add.
Loan amortization glossary
- Amortization
- The process of paying off a debt through a series of scheduled, equal payments. Each payment covers the interest owed on the current balance and reduces the principal by the remainder. The schedule is designed so the balance reaches exactly zero at the final payment.
- Amortization schedule
- A complete table listing every payment for the life of a loan, showing the date, total payment amount, the portion applied to interest, the portion applied to principal, and the remaining balance after each payment. The schedule makes it possible to see exactly when equity milestones are reached or when the principal falls below a threshold like 80% LTV.
- Principal
- The outstanding loan balance — the amount still owed, not counting future interest. Each payment that exceeds the current period's interest charge reduces the principal. Making extra payments reduces the principal faster, which lowers the interest charged in every subsequent period.
- Amortizing payment
- A fixed monthly payment calculated to cover the interest on the current balance and repay the principal over the loan term. The formula is M = P × [r(1+r)ⁿ] / [(1+r)ⁿ − 1], where P is the principal, r is the monthly rate, and n is the number of payments. The payment amount stays the same throughout the term even though the interest/principal split shifts each month.
- Interest-only payment
- A payment that covers only the interest charged on the current balance, with nothing going toward principal. The loan balance does not decrease during an interest-only period. After the IO period ends, the remaining balance is re-amortized over the remaining term, resulting in a higher monthly payment than if the loan had been amortizing from the start.
- Prepayment
- Any payment of principal beyond the scheduled amount. Prepayments reduce the outstanding balance immediately, lowering future interest charges on all remaining periods. A prepayment in an early month saves more than the same amount paid later, because there are more remaining periods for the interest savings to compound.
- Refinance
- Replacing an existing loan with a new loan, typically to obtain a lower interest rate, change the loan term, or access equity. Refinancing involves closing costs (usually 2–5% of the balance) and resets the amortization clock, so the early payments on the new loan are again heavily weighted toward interest rather than principal.
- Loan term
- The number of months (or years) over which a loan is scheduled to be repaid. Longer terms mean lower monthly payments but higher total interest paid. Shorter terms mean higher payments but less total interest and faster equity accumulation. Standard mortgage terms are 15 and 30 years; auto loans are typically 36–72 months.
- Annual Percentage Rate (APR)
- The total yearly cost of borrowing expressed as a percentage, including the interest rate plus origination fees, discount points, and other lender charges spread over the loan term. APR is always higher than the stated interest rate on a loan with closing costs. This calculator uses the stated interest rate for payment math, not APR — the payment formula does not include fees.
- Refinance breakeven point
- The month at which cumulative interest savings from a refinance exactly equal the closing costs paid upfront. Formula: closing costs ÷ monthly payment reduction. If you plan to keep the loan past the breakeven month, refinancing saves money. If you expect to sell or pay off before breakeven, the closing costs are not recovered.
More loan questions
What is the amortization formula?
The standard amortization formula is M = P × [r(1+r)ⁿ] / [(1+r)ⁿ − 1], where M is the monthly payment, P is the loan principal, r is the monthly interest rate (annual rate ÷ 12), and n is the total number of monthly payments. This formula calculates the fixed payment that exactly exhausts the principal over n periods at rate r. This calculator runs the formula and then iterates month by month to produce the full schedule, which allows exact calculation of total interest and the effect of extra payments or lump sums.
Why does so little of my early payment go to principal?
Because interest is always charged on the remaining balance, and the balance is highest at the start. On a $300,000 loan at 6%, month-1 interest is $1,500 — nearly 83% of the $1,798.65 payment. Only $298.65 reduces the principal. As the balance falls over time, the interest portion shrinks and more of each payment goes to principal. By year 20 of a 30-year mortgage, more than half of each payment reduces principal.
How does a biweekly payment schedule work?
An accelerated biweekly schedule splits the monthly payment in half and pays that amount every two weeks. Since there are 52 weeks per year, you make 26 half-payments — equivalent to 13 full monthly payments instead of 12. That one extra payment per year, applied entirely to principal, reduces the term of a 30-year mortgage to roughly 25–26 years and saves tens of thousands in interest. The biweekly toggle in the calculator shows your exact savings.
Does paying extra principal reduce the monthly payment or the loan term?
By default, most lenders apply extra principal to shorten the loan term while keeping the required monthly payment the same. Your next scheduled payment is still the same amount, but the loan pays off earlier. Some lenders offer loan recasting — a one-time fee to re-amortize the remaining balance at the original term, which does lower the required monthly payment. Check with your lender; recasting is not available on all loan types.
What this calculator computes — and what it does not
This calculator models fixed-rate, fully amortizing loans using the standard amortization formula. A number of real-world factors are outside its scope.
- 1.Results are estimates, not guarantees. Actual loan costs depend on the exact terms in your loan agreement, any fees charged at origination, how the lender applies payments, and whether you make every payment exactly on schedule. This calculator assumes all payments are made on time with no changes.
- 2.Interest rates are user-supplied, not live market data. This tool does not connect to any rate feed. The rate you enter should come from a lender quote or your loan agreement. Current rates vary by lender, credit score, loan type, and market conditions — this calculator cannot provide those figures.
- 3.Property taxes, insurance, and PMI are excluded unless toggled on. The payment computed here is principal and interest only. For a mortgage, your total monthly obligation includes property taxes, homeowners insurance, and PMI (if your down payment is under 20%) — collected in escrow by most lenders. These can add $200–$800 or more per month to the P&I payment shown.
- 4.APR vs. interest rate. This calculator uses the stated interest rate for payment math. APR (Annual Percentage Rate) is always higher than the interest rate because it spreads lender fees over the loan term. APR is the correct metric for comparing loan costs across lenders; the stated rate is the correct input for computing the payment schedule.
- 5.Variable-rate loans cannot be accurately projected. This calculator models fixed-rate amortization only. For adjustable-rate mortgages (ARMs), tracker mortgages, or variable-rate personal loans, the payment changes when the rate resets — the full-term projection would require assumptions about future rates that cannot be known in advance.
This calculator is for educational and planning purposes only. It does not constitute financial, mortgage, or legal advice.