What is amortization?
Amortization means paying off a loan in regular installments that cover both interest and principal. With a standard fixed-rate mortgage, car loan or personal loan you pay the same amount every month. At the start the balance is high, so most of each payment is interest. As the balance falls, the interest portion shrinks and more goes to principal. By the end of the term the loan is paid off exactly.
The monthly payment formula:
payment = P × r ÷ (1 − (1 + r)^−n)
Here P is the principal, r the monthly rate (annual rate ÷ 12) and n the number of monthly payments.
Example: a 30-year mortgage
You borrow $300,000 at 6.5% for 30 years.
- monthly principal and interest: $1,896.20
- total repaid: $682,633.47
- total interest: $382,633.47
In year one you pay $22,754.45, of which $19,401.27 is interest and only $3,353.18 principal. After 10 years you still owe about $254,328, so you have paid off only 15% of the loan in a third of the term. Taxes, insurance and PMI come on top of this payment; the mortgage calculator includes the down payment and loan-to-value.
15 years versus 30 years
A shorter term means a higher payment but far less interest:
| $300,000 at 6.5% | 30 years | 15 years |
|---|---|---|
| Monthly payment | $1,896.20 | $2,613.32 |
| Total interest | $382,633.47 | $170,397.98 |
The 15-year loan costs about $717 more a month but saves over $212,000 in interest. In practice 15-year mortgages also tend to carry a lower rate, which widens the gap further.
Amortizing or straight-line?
With straight-line repayment (common in the Netherlands and for some business loans) you repay the same principal every month: the loan divided by the number of months, plus interest on the remaining balance. The first payment is higher than with an amortizing loan, but it falls every month, and total interest is lower because you repay faster. For €300,000 at 4% over 30 years, the first straight-line payment is €1,833.33 against €1,432.25 for an amortizing loan, but total interest drops from €215,609 to €180,500.
Reading the schedule
For each year the schedule shows:
- Paid: all monthly payments in that year;
- Interest: the part that goes to the lender;
- Principal: the part that reduces your debt;
- Balance: what you still owe at the end of the year.
The balance tells you what you would owe if you sold or refinanced after a number of years, and how much equity you have built from repayments. Use the home equity calculator to add the value of your home.
Paying extra
Extra principal payments either shorten the term (same payment) or lower the payment if the lender recasts the loan. The earlier you pay extra, the more interest you save, because every dollar of principal stops accruing interest for the rest of the term. One extra payment a year on a 30-year mortgage typically cuts several years off the loan. Check first whether your loan has a prepayment penalty, and compare the guaranteed saving with what that money could earn elsewhere.
Notes
The calculator uses a nominal annual rate divided by 12, the standard for US mortgages and most loans quoted with an APR based on the note rate. Fees, points, taxes, insurance and PMI are not included.
Frequently asked questions
How is a monthly loan payment calculated?
With P × r ÷ (1 − (1 + r)^−n). For $20,000 at 0.5% a month (6% a year) over 60 months that is $386.66 a month.
Why do I pay mostly interest at the start?
Interest is charged on the remaining balance, which is highest at the start. Only later does most of each payment go to principal.
What is the difference between amortizing and straight-line?
Amortizing keeps the payment the same every month; straight-line keeps the principal the same, so the payment falls over time. Straight-line costs less interest overall but starts with higher payments.
How much do I still owe after 10 years?
Look at the balance column for year 10. On $300,000 at 6.5% over 30 years it is about $254,328.
Does paying extra principal help?
Yes. Each extra dollar of principal saves the interest it would have accrued for the rest of the term, so the loan ends sooner or the payment falls.
Can I use this for a car loan?
Yes. Enter the amount financed, the APR and the term in years (for example 5 for a 60-month loan).
Last reviewed: 2026-10-06. Results are estimates for information only.