Understanding Amortization
Amortization is the process of spreading out a loan into a series of fixed payments over time. While the payment amount remains equal each month, the way that payment is applied changes drastically over the life of the loan.
Principal vs. Interest
Every monthly payment you make is split into two parts:
- Interest: The fee you pay the bank for borrowing the money.
- Principal: The actual balance of the loan being paid down.
At the beginning of your loan, your balance is at its highest, meaning the interest charge is also at its highest. Therefore, the vast majority of your early payments go purely toward interest, not paying down your actual debt.
As the years go by and the principal shrinks, the interest charged shrinks with it. By the end of the loan, almost your entire payment goes straight to principal. Our schedule generator lets you peer into the future and see this exact breakdown for every single month.
How to use this calculator
- Loan Amount: Enter the total amount you are borrowing.
- Interest Rate: Enter the annual interest rate (APR) provided by your lender.
- Loan Term: Specify how long the loan will last in years and months.
The calculator will immediately tell you your fixed monthly payment, your total interest to be paid over the life of the loan, and generate a fully scrollable month-by-month table showing your exact balance trajectory.