Amortization Calculator: How It Works
An amortisation schedule is the month-by-month story of a loan: how much of each payment kills debt, how much is rent on the money, and what is left. Reading one properly is the difference between knowing your payment and understanding your loan.
How the split is calculated
Each period runs the same three steps:
- Interest = current balance × periodic rate.
- Principal = payment − interest.
- New balance = current balance − principal.
Because the payment is fixed but the balance falls, the interest portion shrinks every period and the principal portion grows by exactly the same amount. Nothing else is happening — the entire shape of a mortgage comes from these three lines repeated a few hundred times.
The first and last rows of a real loan
200,000 at 6% over 30 years, payment 1,199.10:
| Payment # | Interest | Principal | Balance after |
|---|---|---|---|
| 1 | 1,000.00 | 199.10 | 199,800.90 |
| 2 | 999.00 | 200.10 | 199,600.80 |
| 60 (yr 5) | 942.29 | 256.81 | 187,914.55 |
| 180 (yr 15) | 747.06 | 452.04 | 148,960.10 |
| 300 (yr 25) | 333.87 | 865.23 | 65,908.31 |
| 360 | 5.97 | 1,193.13 | 0.00 |
After five years of payments totalling 71,946 the balance has fallen by 12,085. Total interest across the full term is 231,676 — more than the amount borrowed.
The halfway point is not halfway
On a 30-year loan at typical rates you do not repay half the principal until somewhere around year 19 or 20. This surprises almost everyone, and it is the practical reason that selling or refinancing early in a long loan returns so little equity.
What an extra payment actually does
An additional amount applied to principal skips ahead in the schedule. It removes not just that principal but every future interest charge that principal would have generated.
| Extra per month | Term becomes | Interest saved |
|---|---|---|
| 0 | 30 yrs | — |
| 100 | 24 yrs 8 mo | ≈ 49,700 |
| 200 | 21 yrs 3 mo | ≈ 78,600 |
| 500 | 15 yrs 5 mo | ≈ 127,000 |
Two conditions matter. The extra must be applied to principal, not held as a prepaid future instalment — say so explicitly when you pay. And the loan must have no prepayment penalty.
Reading a schedule for a decision
- Refinancing: compare the interest remaining on your current schedule against the interest on the proposed one, including fees. A lower rate over a fresh 30-year term frequently costs more in total.
- Selling: the balance column at your expected sale date tells you what you will owe; the difference against the sale price, less costs, is what you walk away with.
- Tax: where mortgage interest is deductible, the interest column is the figure that matters, and it falls every year.
Where real schedules differ
Lenders may use daily rather than monthly interest accrual, round each row to the nearest currency unit, and adjust the final payment to clear a residual balance of a few units. Interest-only periods, rate resets on variable loans and capitalised fees all change the shape. Treat a generated schedule as an accurate model, and your lender's statement as the record.