An amortization calculator is useful for understanding the long-term cost of a fixed-rate mortgage because it shows the total principal you'll pay over the life of the loan. It's also helpful for understanding how your mortgage payments are structured. If you've ever wondered how much of your monthly payment will go toward interest and how much will go toward principal, an amortization calculator is an easy way to get that information.

Key Takeaways

  • When you have a fully amortizing loan like a mortgage or car loan, you will pay the same amount every month. The lender will apply a gradually smaller part of your payment toward interest and a gradually larger part of your payment toward principal until the loan is paid off.
  • Amortization calculators make it easy to see how a loan's monthly payments are divided into interest and principal.
  • You can use a regular calculator or a spreadsheet to do your own amortization math, but an amortization calculator will provide a faster result.

Estimate Your Monthly Amortization Payment

When you amortize a loan, you pay it off gradually through periodic payments of interest and principal. A loan that is self-amortizing will be fully paid off when you make the last periodic payment.

The periodic payments will be your monthly principal and interest payments. Each monthly payment will be the same, but the amount that goes toward interest will gradually decline each month, while the amount that goes toward principal will gradually increase each month. The easiest way to estimate your monthly amortization payment is with an amortization calculator.

Amortization Calculator Results Explained

To use an amortization calculator, you'll need these inputs:

Loan amount: How much do you plan to borrow, or how much have you already borrowed?

Loan term: How many years do you have to repay the loan?

Interest rate: What is the lender charging you annually for the loan?

With these inputs, the amortization calculator will output your monthly payment.

For example, if your mortgage amount is $150,000, your loan term is 30 years, and your interest rate is 3.5%, your monthly payment will be $673.57. The amortization schedule will also show you that your total interest over 30 years will be $92,484 ( $92,484.13, to be precise, as the amortization schedule will show you).

For this and other additional detail, you'll want to dig into the amortization schedule.

What Is an Amortization Schedule? 

An amortization schedule gives you a complete breakdown of every monthly payment showing how much goes toward principal and how much goes toward interest. It can also show the total interest you will have paid at a given point during the life of the loan and what your principal balance will be at any point.

Using the same $150,000 loan example from above, an amortization schedule will show you that your first monthly payment will consist of $236.07 in principal and $437.50 in interest. Ten years later, your payment will be $334.82 in principal and $338.74 in interest. Your final monthly payment after 30 years will have less than $2 going toward interest, with the remainder paying off the last of your principal balance.

How Can You Calculate an Amortization Schedule on Your Own?

A loan amortization schedule is calculated using the loan amount, loan term, and interest rate. If you know these three things, you can use Excel's PMT function to calculate your monthly payment. In our example above, the info to enter in an Excel cell would be =PMT(3.5%/12,360,150000). The result will be $673.57.

Once you know your monthly payment, you can calculate how much of your monthly payment is going toward principal and how much is going toward interest using this formula:

Principal Payment = Total Monthly Payment – [Outstanding Loan Balance x (Interest Rate/12 Months)]

Multiply $150,000 by 3.5%/12 to get $437.50. That's your interest payment for your first monthly payment. Subtract that from your monthly payment to get your principal payment: $236.07.

Next month, your loan balance will be $236.07 smaller, so you'll repeat the calculation with a principal amount of $149,763.93. This time, your interest payment will be $436.81, and your principal payment will be $236.76.

Just repeat this another 358 times and you'll have yourself an amortization table for a 30-year loan. Now you know why using a calculator is so much easier. But it's nice to understand how the math behind the calculator works.

You can create an amortization schedule for an adjustable-rate mortgage, but it involves guesswork. If you have a 5/1 ARM, the amortization schedule for the first five years is easy to calculate because the rate is fixed for the first five years. After that, the rate will adjust once per year. Your loan terms say how much your rate can increase each year and the highest your rate can go, as well as the lowest rate.

How to Calculate Amortization with an Extra Payment

Sometimes people want to pay down their loans faster to save money on interest. Even if you have a low interest rate, you might decide to make an extra payment toward your principal when you can afford it because you don't want to carry any debt.

If you wanted to add $50 to every monthly payment, you could use the formula above to calculate a new amortization schedule and see how much sooner you would pay off your loan and how much less interest you would owe. In this example, putting an extra $50 per month toward your mortgage would increase the monthly payment to $723.57.

Your interest payment in month 1 would still be $437.50, but your principal payment would be $286.07. Your month 2 loan balance would then be $149,713.93, and your second month's interest payment would be $436.67. You'll already have saved 14 cents in interest! No, that's not very exciting. What is exciting is that, if you kept it up until your loan were paid off, your total interest would amount to $80,545.98 instead of $92,484.13. You'd also be debt free almost three-and-a-half years sooner.

Mortgage Amortization Isn't the Only Kind

We've talked a lot about mortgage amortization so far, because that's what people usually think about when they hear the word "amortization." But a mortgage is not the only type of loan that can amortize. Auto loans, home equity loans, student loans, and personal loans also amortize. They have fixed monthly payments and a predetermined payoff date.

Which types of loans do not amortize? If you can reborrow money after you pay it back and you don't have to pay your balance in full by a particular date, then you have a non-amortizing loan. Credit cards and lines of credit are examples of non-amortizing loans.

How Can Using an Amortization Calculator Help Me?

Our amortization calculator can help you do many things:

  1. See how much principal you will owe at any future date during your loan term.
  2. See how much interest you've paid on your loan so far.
  3. See how much interest you'll pay if you keep the loan until the end of its term .
  4. Figure out how much equity you should have, if you're second-guessing your monthly loan statement.
  5. See how much interest you'll pay over the entire term of a loan, and show you the impact of choosing a longer or shorter loan term or getting a higher or lower interest rate.

The Bottom Line

An amortization calculator offers a convenient way to see the effect of different loan options. By changing the inputs—interest rate, loan term, amount borrowed—you can see what your monthly payment will be, how much of each payment will go toward principal and interest, and what your long-term interest costs will be. This type of calculator works for any loan with fixed monthly payments and defined end date, whether it's a student loan, auto loan, or fixed-rate mortgage.