Chartered Financial Analyst (CFA) specializing in fixed-income securities and advanced debt amortization models.
See a detailed payment-by-payment schedule for your loan. Enter your loan amount, interest rate, and term to see a full breakdown of how much interest and principal you pay each month.
Amortization Schedule Calculator
Loan Amortization Formula
The calculation is a two-step process. First, we find the fixed monthly payment (M). Second, we loop through each payment, calculating the interest portion and subtracting the principal portion from the balance.
2. Interest (Payment 1) = Balance * r
3. Principal (Payment 1) = M – Interest
4. New Balance = Balance – Principal
- M: Monthly Payment
- P: Principal Loan Amount (your loan)
- r: Monthly Interest Rate (Annual Rate / 12)
- n: Total Number of Payments (Term in Years * 12)
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What is an Amortization Schedule?
An amortization schedule is a complete table of loan payments, showing the amount of principal and interest that make up each payment. “Amortization” is the process of paying off a debt over time in regular installments.
At the beginning of your loan, your payment is mostly interest. This is because the interest is calculated on a large outstanding balance. As you pay down the balance, the interest portion of your payment shrinks, and the principal portion grows. An amortization schedule lets you see this entire process, month by month, until your balance reaches zero.
How to Calculate an Amortization Schedule (Example)
Let’s use a simple example: a $10,000 loan for 3 years at 5%.
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Step 1: Calculate Monthly Payment (M):
Using the formula, the monthly payment (M) is $299.71.
P = $10,000, r = (0.05 / 12), n = 36 -
Step 2: Calculate Payment 1:
Interest = $10,000 * (0.05 / 12) = $41.67
Principal = $299.71 – $41.67 = $258.04
New Balance = $10,000 – $258.04 = $9,741.96 -
Step 3: Calculate Payment 2:
Interest = $9,741.96 * (0.05 / 12) = $40.60
Principal = $299.71 – $40.60 = $259.11
New Balance = $9,741.96 – $259.11 = $9,482.85 -
Step 4: Repeat for all 36 Payments:
This process is repeated until the New Balance reaches $0 at the final payment.
Frequently Asked Questions (FAQ)
Interest is calculated based on your *current outstanding balance*. In the beginning, your balance is at its highest, so the interest charged is also at its highest. As your balance decreases, the interest portion of each payment also decreases, allowing more of your payment to go toward the principal.
The only way to pay more principal is to make extra payments. Any amount you pay *above* your required monthly payment (M) goes directly toward reducing the principal. Use our Extra Payment Calculator to see how this affects your loan.
This calculator is for fixed-rate loans. An amortization schedule for an ARM is more complex because it *changes* every time the interest rate adjusts. Your schedule would be accurate for the initial fixed period, but would need to be recalculated after the rate changes.