Each payment splits into interest (balance × monthly rate) and principal; the table aggregates by year.
An amortization calculator breaks down a loan with fixed payments — such as a mortgage or car loan — into a payment-by-payment schedule. It shows the monthly payment and, for each payment, how much goes toward interest and how much reduces the loan balance (the principal). It also totals the interest paid over the life of the loan.
It is useful for comparing loan offers, understanding the true cost of borrowing, and seeing how extra payments shorten the loan. It handles only fixed-rate, fixed-payment loans — not variable rates or changing payments.
The calculator first computes the fixed monthly payment with the standard loan formula: Payment = P × (r(1 + r)^n) / ((1 + r)^n − 1), where P is the loan amount, r is the monthly interest rate (annual rate ÷ 12), and n is the total number of monthly payments. This payment stays the same every month for the whole loan term.
What changes is the split inside each payment. Each month, the interest portion equals the remaining balance × the monthly rate, and the rest reduces the principal. Early on, the balance is large, so most of the payment is interest and only a small slice reduces principal. As the balance shrinks, interest falls and the principal portion grows — this shifting split is the amortization schedule.
The total interest paid is simply (monthly payment × number of payments) − loan amount. Because interest is charged on the outstanding balance, paying the loan off faster — through extra payments — reduces the total interest.
In this example, consider a $200,000 loan at 5% annual interest over 30 years (360 monthly payments). The monthly payment works out to approximately $1,073.64.
The first three rows of the amortization schedule look like this:
| Payment | Interest | Principal | Remaining balance |
|---|---|---|---|
| 1 | $833.33 | $240.31 | $199,759.69 |
| 2 | $832.33 | $241.31 | $199,518.38 |
| 3 | $831.33 | $242.32 | $199,276.06 |
Notice the pattern: the first $1,073.64 payment holds $833.33 of interest and only $240.31 of principal; with each payment the interest slice shrinks and the principal slice grows. Over 30 years the borrower pays about $386,512 in total — roughly $186,512 of it interest, nearly as much as the original loan. These figures illustrate the math for this example; actual costs also include fees, taxes, and insurance not covered here.
The process of paying off a loan through regular payments where early payments are mostly interest and later ones mostly principal.
Interest is charged on the outstanding balance, which is largest at the beginning of the loan.
