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How It Works
Loan amortization splits each monthly payment between interest and principal. Early payments are mostly interest; later payments are mostly principal. The formula ensures the loan is fully paid off by the end of the term.
Enter the annual interest rate as a percentage (e.g., 6.5), the loan amount, and the term in years. The calculator shows monthly payment, total interest, and a visual amortization schedule.
Example Problem
A $200,000 loan at 6.5% annual interest for 30 years.
- Monthly rate: 6.5% / 12 / 100 = 0.005417
- Number of payments: 30 × 12 = 360
- Monthly payment: $1,264.14
- Total interest over 30 years: $255,089
You pay more in interest than the original loan amount. A 15-year term at the same rate gives a $1,742 payment but only $113,535 in total interest.
Frequently Asked Questions
How is a loan payment calculated?
The amortization formula is M = P × r(1+r)n / [(1+r)n − 1], where r is the monthly rate and n is total payments. For a $100,000 loan at 5% for 30 years, the monthly payment is $536.82.
How much interest do you pay over the life of a loan?
Multiply the monthly payment by total payments, then subtract the principal. A $300,000 mortgage at 7% for 30 years costs about $418,527 in total interest — more than the original loan.
Does extra payment reduce total interest?
Yes. Even small extra payments reduce the principal faster, cutting total interest and the payoff timeline. Adding $100/month to a $250,000 mortgage at 6% saves about $45,000 in interest and pays off 5 years early.
Related Calculators
- Mortgage Loan Calculator — dedicated mortgage payment calculator.
- Interest Rate Calculator — compute simple and compound interest.
- Loan to Value Calculator — assess LTV ratio for lending.
- Compounding & Discount Factors Calculator — time-value-of-money factors behind loan math.
- Rule of 72 Calculator — estimate how quickly debt doubles at a given rate.
Reference: Brealey, R., Myers, S., & Allen, F. Principles of Corporate Finance. McGraw-Hill Education.