US Amortization calculator

How amortization works

An amortising loan is repaid in equal instalments calculated so the balance hits zero exactly at the end of the term: M = P · r · (1 + r)n / ((1 + r)n − 1). The payment never changes — what changes is its composition. Interest each month equals the outstanding balance times the monthly rate, and whatever is left of the payment reduces principal.

Worked example

A $300,000 loan at 6.5% over 30 years has a payment of $1,896/month:

• Month 1: $1,625 interest, $271 principal
• Year 10: roughly $1,380 interest, $516 principal per month
• Year 22 is the crossover — principal finally exceeds interest
• Total interest over the term: about $382,600 — more than the loan itself

Why extra payments punch above their weight

An extra payment goes entirely to principal, which permanently removes the interest that balance would have generated every remaining month of the term. On the example above, $200 extra per month clears the loan about 6 years early and saves roughly $87,000 in interest. The earlier in the term you pay extra, the larger the effect — there are more months of future interest to cancel.

Common mistakes

• Confusing term length with cost. Two loans with the same payment can have wildly different totals — always compare total interest, not just the monthly figure.
• Extra payments applied as "advance payments." Some servicers hold extra money against future instalments instead of reducing principal. Specify "apply to principal."
• Ignoring prepayment limits. Fixed-rate products in the UK and Australia often cap overpayments at around 10% of the balance per year.

For the full house-purchase picture — taxes, insurance, PMI — use the mortgage calculator; to target a specific payoff date, try the mortgage payoff calculator.