What amortization means
To amortize a loan is to pay it off through equal, regular payments that cover both interest and principal. The payment amount is fixed at the start, but the mix inside it changes every month: interest is charged on whatever balance is left, so as the balance falls, less of each payment is interest and more of it chips away at principal.
This calculator rebuilds that process one month at a time. That's also what makes extra payments easy to model — any extra dollar reduces the balance immediately, so every later month's interest is a little smaller and the loan finishes early.
The formula, month by month
Scheduled payment M = P × r / (1 − (1 + r)^−n) Interest this month = balance × r Principal this month = M − interest + extra New balance = balance − principal
Here r is the annual rate ÷ 12 and n is the number of months. The final payment is reduced to whatever is left, so the balance lands exactly on zero.
Worked example
Borrow $250,000 at 6.75% for 30 years. The scheduled payment is $1,621.50. In month one, interest is 250,000 × 0.0675 / 12 = $1,406.25, so only $215.25 reduces the balance.
Over 360 months you'd pay $333,738 in interest. Adding $150 a month pays the loan off in 282 months — 6 years 6 months sooner — and total interest drops to $248,680, a saving of about $85,058.
Assumptions and limitations
- Fixed rate and monthly compounding; the extra payment is made every month starting with the first.
- Payments are kept to full precision and shown rounded to the cent; a lender that rounds each payment may differ by a few cents per month and a few dollars on the final payment.
- Taxes, insurance and PMI aren't part of amortization — use the mortgage calculator for the full housing payment.
- Some loans charge a prepayment penalty; check your note before paying extra.
Frequently asked questions
What is an amortization schedule?
It is a table listing every payment on a loan, showing how much of each goes to interest, how much to principal, and the balance left afterward. It lets you see exactly when equity builds and how much a payoff would cost at any point.
Do extra payments go straight to principal?
Usually, but check with your servicer. Many lenders apply anything above the scheduled payment to principal automatically; some require you to mark it "principal only". Either way, interest for the next month is then charged on the smaller balance, which is where the savings come from.
Is it better to pay extra early or late in the loan?
Early. A dollar of principal repaid in year one avoids interest for every remaining month, while the same dollar repaid near the end saves very little. That is why a modest extra payment from the start shortens a 30-year mortgage by years.
Why does my payment stay the same while interest falls?
A fixed-rate amortizing loan keeps the total payment constant. As the balance drops, the interest portion shrinks and the principal portion grows by exactly the same amount.
Does this work for a car loan?
Yes — any fixed-rate loan with equal monthly payments. Enter the amount financed, the rate and the term in years. For terms like 66 months, use 5.5 years.
CalcNest results are estimates based on the inputs and assumptions above, not financial, tax or lending advice. A lender's official Loan Estimate or your account statement is the final word.