CFP professional with extensive experience in debt management, financial planning, and retirement strategies.
The **Amortization Schedule Calculator** solves for the missing loan component (Principal, Payment, Term, or Rate) and generates a detailed breakdown of how your monthly payment is applied to principal and interest over the entire life of the loan. Enter any three known values to determine the fourth.
Loan Amortization Schedule Calculator
Amortization Formula Overview
Amortization calculations are based on the standard monthly payment formula (where $i = R/1200$ is the monthly rate):
M = P × [ i ÷ (1 - (1 + i)⁻ᴺ) ]
The schedule is calculated iteratively:
Interest = Remaining Balance × i
Principal Paid = M - Interest
Formula Source: The Balance – Loan Amortization
Variables Explained
- P (Loan Principal): The starting balance of the loan.
- M (Monthly Payment): The required fixed monthly installment.
- N (Loan Term in Months): The number of periods until the loan is fully repaid.
- R (Annual Interest Rate %): The annual rate used to calculate monthly interest charges.
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What is Loan Amortization?
Loan **amortization** is the process of paying off debt over time in regular installments. In a standard amortized loan (like a mortgage or auto loan), each monthly payment remains the same, but the proportion of that payment applied to **interest** versus **principal** changes over the term.
Early in the loan’s life, the majority of the payment goes toward interest because the principal balance is high. As the principal is paid down, less interest is charged each month, and a progressively larger portion of the fixed payment is allocated toward reducing the principal balance. This calculator generates the detailed schedule illustrating this shift.
How to Generate the Schedule (Example)
Given P = $10,000, R = 5%, N = 12 months, the Monthly Payment (M) is $856.07. Here is the first payment’s breakdown:
- Calculate Monthly Rate (i):
$$i = 0.05 \div 12 \approx 0.004167$$
- Calculate Interest for Month 1:
$$Interest = \text{Initial Balance} \times i = \$10,000 \times 0.004167 \approx \$41.67$$
- Calculate Principal Paid:
$$Principal = M – \text{Interest} = \$856.07 – \$41.67 = \$814.40$$
- New Balance:
$$\text{New Balance} = \$10,000 – \$814.40 = \$9,185.60$$
This new balance of $9,185.60 is then used to calculate the interest for Month 2, and so on, until the balance reaches zero.
Frequently Asked Questions (FAQ)
It provides total transparency, showing exactly how much interest you pay over the loan term and when you will reach specific principal milestones. It’s crucial for planning extra payments.
What happens if I make an extra payment?An extra payment goes entirely toward the principal, reducing the loan balance immediately. This causes the next month’s interest charge to be lower, shortening the total loan term and saving significant interest over time. This standard calculator does not account for extra payments, but related tools do.
Does this schedule include taxes or insurance?No. This schedule only covers Principal and Interest (P&I). Taxes and Insurance (making up the T&I in PITI) are escrow components and are generally excluded from the core amortization calculation.
What is Negative Amortization?Negative Amortization occurs when your monthly payment is less than the interest charged for that month. The unpaid interest is added to the principal balance, causing your total debt to grow over time, which this standard calculator does not allow.