Amortization Calculator
Payment Tips
Extra Payments
Even $100/month extra can save thousands in interest
Bi-Weekly Payments
26 half-payments = 13 full payments per year
Round Up
Round payment to nearest $50 or $100
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Understanding Loan Amortization
What is Amortization?
Amortization is the process of spreading loan payments over time. Each payment covers both interest and principal, with early payments being mostly interest and later payments being mostly principal. This gradual payoff is calculated using an amortization schedule.
Monthly Payment Formula
How Amortization Works
With an amortizing loan, your monthly payment stays the same, but the allocation between interest and principal changes over time. Here's how it works:
Early Payments
In the first years, most of your payment goes toward interest because the outstanding balance is highest. For a $250,000 mortgage at 6.5%, the first payment might be $1,580 with $1,354 going to interest.
Later Payments
As you pay down the balance, more of each payment goes to principal. By the final payment, almost all of it reduces your balance. The last payment might have only $8 in interest.
Sample Amortization Schedule
| Year | Payment | Principal | Interest | Balance |
|---|---|---|---|---|
| 1 | $18,960 | $2,817 | $16,143 | $247,183 |
| 5 | $18,960 | $3,616 | $15,344 | $233,376 |
| 10 | $18,960 | $5,003 | $13,957 | $210,877 |
| 20 | $18,960 | $9,573 | $9,387 | $134,952 |
| 30 | $18,960 | $18,352 | $608 | $0 |
Based on $250,000 loan at 6.5% for 30 years
The Power of Extra Payments
Making extra payments toward principal can significantly reduce your total interest and shorten your loan term. Here's how different extra payment amounts affect a $250,000, 30-year mortgage at 6.5%:
| Extra Monthly | New Term | Interest Saved | Time Saved |
|---|---|---|---|
| $0 | 30 years | $0 | 0 months |
| $100 | 25.5 years | $51,562 | 54 months |
| $200 | 22.3 years | $87,753 | 92 months |
| $500 | 16.8 years | $148,619 | 158 months |
Comparing Loan Terms
30-Year Mortgage
- • Lower monthly payments
- • More interest paid over life of loan
- • Better for tight budgets
- • More flexibility for other investments
15-Year Mortgage
- • Higher monthly payments
- • Much less total interest
- • Usually lower interest rate
- • Build equity faster
$250,000 Loan Comparison:
Strategies to Pay Off Faster
Bi-Weekly Payments
Pay half your monthly payment every two weeks. This results in 26 half-payments (13 full payments) per year instead of 12, shaving years off your loan.
Round Up Payments
Round your payment up to the nearest $50 or $100. The extra goes directly to principal and can save thousands over the loan term.
Annual Lump Sum
Apply tax refunds, bonuses, or other windfalls directly to principal. One extra payment per year can cut years off your mortgage.
Refinance Shorter Term
When rates drop, refinance to a shorter term. This commits you to higher payments and ensures you'll pay off faster.
Important Consideration
Before making extra payments, check if your loan has a prepayment penalty. Most mortgages don't, but some loans (especially older ones) may charge a fee for paying off early. Also ensure extra payments go to principal, not just future payments. Contact your lender if unsure.
Frequently Asked Questions
What is an amortization schedule?
An amortization schedule is a complete table showing each periodic payment on a loan over time. It breaks down how much of each payment goes toward principal versus interest, and shows the remaining balance after each payment. This helps you understand exactly how your loan will be paid off and how much total interest you'll pay.
Why do I pay more interest at the beginning of my loan?
Interest is calculated on the remaining balance of your loan. At the beginning, your balance is highest, so more of each payment goes toward interest. As you pay down the principal over time, less interest accrues each month, and more of your payment reduces the principal. This is why the first years of a mortgage are 'interest-heavy.'
How can I pay off my loan faster?
You can pay off your loan faster by making extra payments toward principal, switching to bi-weekly payments (which adds one extra payment per year), rounding up your payments, or making lump-sum payments when possible. Even an extra $100 per month on a mortgage can save tens of thousands in interest and shorten your term by years.
What is the difference between a 15-year and 30-year mortgage amortization?
A 15-year mortgage has higher monthly payments but dramatically lower total interest costs. For example, a $250,000 loan at 6.5% would cost about $318,000 in interest over 30 years versus only $130,000 over 15 years. The 15-year option also typically comes with a lower interest rate. Choose based on your monthly budget and long-term financial goals.