Mortgage Amortization Calculator

How it works

Amortization is the schedule that pays a loan off in equal payments. Each month the lender charges interest on the balance you still owe. The rest of your fixed payment goes to the principal.

That payment is set once, by the standard formula:

• L — the loan amount
• i — the monthly interest rate (APR ÷ 12)
• n — the number of monthly payments

Building the schedule means repeating two steps every month. First, multiply the current balance by the monthly rate to get the interest charge. Then take the rest of the payment off the principal.

Because the balance is smaller each month, the next interest charge is smaller too. So an amortizing loan pays down slowly at first and much faster at the end. That uneven pace is why this amortization calculator reports each year separately instead of one average.

With the defaults above, a $320,000 loan at 6.5% over 30 years has a level payment of about $2,023. In the first month roughly $1,733 of that is interest, and only about $290 goes to principal. By the final year almost the whole payment is principal.

Across all 360 payments the interest adds up to about $408,142, so the schedule totals around $728,142. That interest bill is larger than the $320,000 you borrowed. Does a 15-year term still look expensive next to that?

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How to use this calculator

1. Enter the loan amount, which is the purchase price minus your down payment.
2. Type in the interest rate your lender quoted, as an annual rate.
3. Set the term in years, usually 30 or 15 on a mortgage.
4. Read each year's row for the interest paid, the principal repaid and the debt still owed.
5. Change the rate or the term and compare the total interest at the bottom.

A worked example: a $320,000 loan at 6.5%

Picture a first mortgage of $320,000 at 6.5% APR over 30 years. The monthly payment comes to $2,023, spread across 360 payments. Steady and predictable, which is the appeal of a fixed loan.

The amortization schedule shows the part lenders rarely lead with. Over the full 30 years you pay $728,142 in total, and $408,142 of that is interest alone. Early payments go mostly to interest, and only later does the balance start dropping in earnest.

Shortening the term flips the math. A 15-year version of the same loan runs $2,788 a month instead of $2,023, so you pay $765 more each month but clear the debt in half the time. Run your own loan amount and rate to see where the crossover makes sense for you.

How do you read an amortization schedule?

Each row covers one year of the loan. It shows what you paid in total, how much of that was interest, and the debt still owed at year end. Read down the interest column and the changing split is obvious.

• The early years are interest-heavy and the balance barely moves. That slow start is normal on any loan that amortizes, not a sign of an error.
• After 15 years of a 30-year mortgage you often still owe well over half the original loan. Those early principal payments are just too small to move it.
• Anything you send above the scheduled payment goes straight to principal. That is why extra payments cut the most expensive future interest first.
• The table covers principal and interest only, so escrow items such as property tax and homeowners insurance never appear in these totals.

The crossover point on a 30-year loan

Every amortizing loan has a crossover point. That is the month where the principal portion of your payment finally overtakes the interest portion.

Before that month, more than half of each payment is interest. After it, more than half goes to cutting the debt.

On a 30-year mortgage at current rates the crossover often comes in the second decade, not the first. That timing surprises borrowers who assume the halfway year is the halfway point.

• A higher interest rate pushes the crossover later, because interest takes a bigger share of every payment.
• A shorter term reaches it sooner, since principal makes up most of a 15-year payment almost from the start.
• Buying the rate down with points at closing moves the crossover earlier. It also lowers the payment for as long as you keep the loan.
• Once principal is the bigger share, the balance drops quickly and home equity builds much faster.

Why does a fixed payment split differently each month?

On a fixed-rate mortgage the principal and interest payment never changes. Its two parts, though, are recalculated every month. The lender charges interest on the current balance first, then applies the leftover to principal.

So as the debt falls, the interest share falls with it and the principal share rises. That shifting split explains the whole schedule. It is also why early principal is worth so much.

Adjustable-rate mortgages behave differently. When the rate resets, the payment is recalculated too, and the loan re-amortizes over whatever term is left.

Some lenders will also recast a fixed loan after a large lump sum. The balance drops, the term stays the same, and a fresh schedule sets a lower payment.

Interest-only loans go further. For an intro period the payment covers the interest and nothing else. The balance stays flat, and none of the debt is paid off.

Which debts amortize and which do not?

Most installment debt works the way a mortgage does. An auto loan, a personal loan and most federal student loan plans all follow the same pattern. Each uses a level payment against a shrinking interest charge, so each has a schedule you can print.

Revolving credit follows different rules.

• Credit cards never amortize, because the minimum payment is a percentage of a balance you can add to again the next day.
• A HELOC usually charges interest only during the draw period, then converts to an amortizing loan for the repayment years.
• Home equity loans work the other way round from a line of credit. They pay out a fixed lump sum with a full schedule from day one.
• Negative amortization happens when a payment is smaller than the interest due. The shortfall is added to the debt, so the balance climbs.

Any bank, credit union or finance company builds its installment loans on the same two steps. Those steps also run inside this loan amortization calculator, so the table fits a car loan or a student loan just as well.

Planning around your remaining balance

The schedule shows your exact debt at every month of the loan. So it answers questions the monthly payment alone cannot. Borrowers who made a small down payment have the most to gain from reading it.

• Private mortgage insurance can be cancelled at 80% of the original value, and it must come off at 78%. The CFPB explains those rules in Ask CFPB.
• Knowing the future balance tells you how large a new loan would be. That figure, along with your credit score, decides whether refinancing actually makes sense.
• The balance at your move-out year sets how much cash a sale leaves, once closing costs and the payoff are settled.
• Subtract that balance from what the property is worth and you have your home equity. That figure sets the loan-to-value ratio every lender quotes from.

Lenders quote the monthly figure first, so a mortgage calculator is where most buyers start. That payment tells you what you can afford now. The schedule tells you where you will stand in year seven or year twelve.

What the schedule means at tax time

Add up the interest column for one year and you have the figure that matters on a tax return. The IRS lets you deduct that interest total if you itemize. Principal is repayment of a debt, so it never qualifies.

Your lender reports the same total on Form 1098 each January. That form should match the interest shown for the same year. A gap between the two is worth a phone call.

The deduction only helps when your itemized total beats the standard deduction. Interest shrinks every year as the loan amortizes, so many borrowers stop qualifying long before the mortgage ends.

• The IRS caps how much mortgage debt qualifies for the deduction, and the cap depends on when the loan was taken out.
• Points paid at closing follow separate rules, sometimes deductible in the first year and sometimes spread across the term.
• A second home can count, while interest on a rental is treated as a business expense instead of an itemized deduction.

Should extra money go to the loan or to savings?

Paying a mortgage down early earns a guaranteed return equal to its interest rate. So if savings accounts pay less than the loan charges, the extra payment wins on arithmetic alone.

But money in the bank is money you can still reach.

• Clear high-rate debt first, since credit cards often charge several times what a mortgage does and never amortize on their own.
• Keep an emergency fund in a high-yield savings account rather than a checking account. Principal you have already paid cannot be withdrawn again.
• Compare the note rate against what your savings earn after tax, not the APR. The APR folds in closing costs you paid at the start.
• Half payments every two weeks add up to one extra monthly payment a year. That is the least painful way to shorten the term.
• Check that extra amounts are applied to principal, as some lenders hold them and credit them toward next month's payment instead.

What does amortization mean in accounting?

The word has a second meaning outside lending. In accounting, amortization is how a business spreads the cost of intangible assets. That cost is split across the years those assets stay useful.

Software licenses, patents and goodwill from an acquisition are written off a bit each year, usually in equal annual amounts. Long-term contracts work the same way. Depreciation does the same job for physical assets like vehicles and machinery.

• The tax treatment is the reason it matters. Amortizing an intangible turns one large purchase into a run of deductible annual costs.
• A lease is amortized too, with each payment split between interest and the liability on the balance sheet.
• Loan and asset amortization follow the same pattern, a starting figure reduced to zero on a fixed schedule. Only the loan version charges you interest along the way.