How amortization works
Amortization is the process of paying off a loan with regular, equal payments over time. Each payment covers both principal and interest. In the early years, most of your payment goes toward interest; over time, the portion applied to principal grows and the balance shrinks faster.
The monthly payment formula
M = P · [ r(1+r)n ] / [ (1+r)n - 1 ]
- P = loan principal (amount borrowed)
- r = monthly interest rate (annual rate ÷ 12)
- n = total number of monthly payments (years × 12)
Example: $200,000 mortgage at 6% over 30 years
- Monthly payment: ~$1,199.10
- Total paid over 30 years: ~$431,676
- Total interest: ~$231,676
Notice that the total interest nearly equals the original loan amount — that's why a lower rate or shorter term can save you tens of thousands of dollars.
Why an amortization schedule is useful
The schedule shows exactly how much of each payment goes to principal versus interest. It also reveals your outstanding balance at any point, which matters if you plan to refinance, sell, or make extra payments (extra payments go straight to principal and reduce the total interest significantly).
Making extra payments
Adding even $100 a month to a 30-year mortgage can cut several years off the term and save tens of thousands in interest, because every extra dollar goes directly to principal instead of interest. Enter an extra amount above to see the new payoff date and the interest saved.
What this calculator does not include
This is a pure amortization calculator: it covers principal and interest only. A real mortgage payment may also include property taxes, homeowners insurance, HOA fees, and mortgage insurance (PMI). Those depend on the property, your down payment, and local rules — if you need a full monthly housing cost, use a mortgage payment calculator that includes taxes and insurance.