How to use the amortization calculator
Enter the loan amount, annual interest rate and term in years. Add an extra amount you could pay each month to see how much sooner the loan is paid off and how much interest you save. Switch between a yearly summary and a full month-by-month schedule.
What is amortization?
Amortization is paying off a loan through equal, regular payments. Each payment covers the interest charged that month, and the rest reduces the balance. Because interest is calculated on the remaining balance, early payments are mostly interest and later payments are mostly principal.
Reading the schedule
Each row shows how much of your payments went to principal and to interest, and the balance left afterwards. Watching the balance fall makes it easy to see when you will reach milestones, such as owing less than half the original amount.
The effect of extra payments
Any amount paid above the required payment goes straight to principal. That lowers the balance that future interest is charged on, so even a small extra amount each month can take years off a long loan. On a $200,000, 30-year loan at 6%, an extra $100 a month saves more than $49,000 in interest.
Before you pay extra
- Check that your lender applies extra payments to principal and does not charge a prepayment penalty.
- Build an emergency fund first, since money paid into a loan is hard to get back.
- Compare the loan's interest rate with what you could earn by saving or investing instead.
Frequently asked questions
Is it better to pay extra on a loan or invest?
If the loan's rate is higher than the after-tax return you expect from investing, paying it down is usually the better guaranteed return.
Do extra payments lower my monthly payment?
No. On most loans the required payment stays the same, but the loan ends sooner and you pay less interest overall.