Amortization Calculator (2024)

The amortization calculator or loan amortization calculator is a handy tool that not only helps you to compute the payment of any amortized loan, but also gives you a detailed picture of the loan in question through its amortization schedule. The main strength of this calculator is its high functionality, that is, you can choose between different compounding frequencies (including continuous compounding), and payment frequencies You can even set an extra payment.

You can also study the loan amortization schedule on a monthly and yearly bases, and follow the progression of the balances of the loan in a dynamic amortization chart. If you read on, you can learn what the amortization definition is, as well as the amortization formula, with relevant details on this topic. For these reasons, if you would like to get familiar with the mechanism of loan amortization or would like to analyze a loan offer in different scenarios, this tool will be of excellent help.

If you are more interested in other types of repayment schedule, you may check out our loan repayment calculator, where you can choose balloon payment or an even principal repayment options as well. In case you would like to compare different loans, you may make good use of the APR calculator as well.

What is amortized loan? - the amortization definition

The repayment of most loans is realized by a series of even payments made on a regular basis. The popular term in finance to describe loans with such a repayment schedule is an amortized loan. Accordingly, we may phrase the amortization definition as "a loan paid off by equal periodic installments over a specified term". Typically, the details of the repayment schedule are summarized in the amortization schedule, which shows how the payment is divided between the interest (computed on the outstanding balance) and the principal. The amortization chart might also represent the unpaid balance at the end of each period. A few examples of loan amortization are automobile loans, home mortgage loans, student loans, and many business loans.

As in general the core concept that governs financial instruments is the time value of money, the loan amortization is similarly strongly connected to the present value and future value of money. More specifically, there is a concept called the present value of annuity that conforms the most to the loan amortization framework.

💡 You can learn more about these concepts from our time value of money calculator.

To see why, let's consider the following simple example. Suppose you borrow $1,000, which you need to repay in five equal parts due at the end of every year (the amortization term is five years with a yearly payment frequency). The lender charges you 12 percent interest, that is calculated on the outstanding balance at the beginning of each year (therefore, the compounding frequency is yearly).

The illustration below represents the timeline of this example, where PMT is the yearly payment or installment. To find PMT, we need to find a value such that the sum of their present values equals the loan amount: $1,000.

Amortization Calculator (1)Amortization Calculator (2)

The solution of this equation involves complex mathematics (you may check out the IRR calculator for more on its background); so, it's easier to rely on our amortization calculator. After setting the parameters according to the above example, we get the result for the periodic payment, which is $277.41.

Loan amortization schedule - the amortization table

The specific feature of amortized loans is that each payment is the combination of two parts: the repayment of principal and the interest on the remaining principle . The amortization chart below, which appears in the calculator as well, represents the payment schedule of the previous example. As you can see, the interest payments are typically high in early periods and decrease over time, while the reverse is true for the principal payments. The lowering interest amount is matched by the increasing amount of principal so that the total loan payment remains the same over the loan term.

Amortization Calculator (3)

The large unpaid principal balance at the beginning of the loan term means that most of the total payment is interest, with a smaller portion of the principal being paid. Since the principal amount being paid off is comparably low at the beginning of the loan term, the unpaid balance of the loan decreases slowly. As the loan payoff proceeds, the unpaid balance declines, which gradually reduces the interest obligations, making more room for a higher principal repayment. Logically, the higher the weight of the principal part in the periodic payment, the higher the rate of decline in the unpaid balance.

It may be easier to understand this concept if it is displayed as a graph of the relevant balances, which is why this option is also displayed in the calculator.

Amortization Calculator (4)

An amortized loan is a form of credit where the loan is paid off with equal, consecutive payments over a specified period. An amortization schedule shows the structure of these consecutive payments: the interest paid, the principal repaid, and the unpaid balance at the end of each period, which must reach zero during the amortization term.

What is the amortization formula?

As you have now gained some insight into the logic behind the amortized loan structure, in this section you can learn two basic formulas employed in our amortization calculator:

  • Monthly repayment formula

P=A×i1(1+i)tP = \frac{A \times i}{1-(1 + i)^{-t}}P=1(1+i)tA×i

  • Unpaid balance formula

B=A×(1+i)tPi×((1+i)t1)B = A \times (1 + i)^t - \frac{P}{i} \times ((1 + i)^t - 1)B=A×(1+i)tiP×((1+i)t1)


  • PPP - monthly payment amount
  • AAA - loan repayment amount
  • iii - periodic interest rate
  • ttt - number of periods
  • BBB - unpaid balance

For more details and formulas, you may check, where you can also check the precise derivation of the related equations.

Amortization calculator with extra payments

It is worth knowing that the amortization term doesn't necessarily equal to the original loan term; that is, you may pay off the principal faster than the time estimated with the periodic payments based on the initial amortization term. An obvious way to shorten the amortization term is to decrease the unpaid principal balance faster than set out in the original repayment plan. You may do so by a lump sum advance payment, or by increasing the periodic installments.

In this calculator, you can set an extra payment, which raises the regular payment amount. The power of such an extra payment is that its amount is directly allocated to the repayment of the loan amount. In this way, the principal balance decreases in an accelerating fashion, resulting in a shorter amortization term and a considerably lower total interest burden.

The beneficial effect of extra payments is especially profound when the initial loan term is relatively long, such as most mortgage loans. When you set the extra payment in this calculator, you can follow and compare the progress of new balances with the original plan on the dynamic chart, and the amortization schedule with extra payment.

Since the shorter repayment period with advance payments mean lower interest earnings to the banks, lenders often try to avert such action with additional fees or penalties. For this reason, it is always advisable to negotiate with the lender when altering the contractual payment amount.


The results of this calculator, due to rounding, should be considered as just a close approximation financially. For this reason, and also because of possible shortcomings, the calculator is created for instructional purposes only.

Amortization Calculator (2024)


How do I calculate my amortization? ›

To calculate amortization, first multiply your principal balance by your interest rate. Next, divide that by 12 months to know your interest fee for your current month. Finally, subtract that interest fee from your total monthly payment. What remains is how much will go toward principal for that month.

How do you calculate amortization value? ›

How to calculate amortization in accounting? There is a mathematical formula to calculate amortization in accounting to add to the projected expenses. Amortization of an intangible asset = (Cost of asset-salvage value)/Number of years the asset can add value.

Can I make my own amortization schedule? ›

It's relatively easy to produce a loan amortization schedule if you know what the monthly payment on the loan is. Starting in month one, take the total amount of the loan and multiply it by the interest rate on the loan. Then for a loan with monthly repayments, divide the result by 12 to get your monthly interest.

What is better 25 or 30 year amortization? ›

Deciding between a 25-year and a 30-year mortgage amortization comes down to balancing short-term financial relief with long-term financial goals. If your priority is minimizing monthly expenses and maximizing flexibility, and you are comfortable with higher total interest costs, then a 30-year term may be preferable.

How to calculate amortised cost of a loan? ›

Amortised cost model
  1. (1)the amount at which the instrument was initially recognised;
  2. (2)MINUS any repayments of principal;
  3. (3)PLUS or MINUS cumulative amortisation, using the effective interest method, of the difference between the initial recognition amount and the maturity amount, and any fees or transaction costs;

How to solve amortization problems? ›

Amortization Formula
  1. PMT=P⋅(rm)[1−(1+rm)−mt]
  2. P is the balance in the account at the beginning (the principal, or amount of the loan)
  3. r is the annual interest rate in decimal form.
  4. t is the length of the loan, in years.
  5. m is the number of compounding periods in one year.
May 26, 2022

What is amortization with example? ›

The term “amortization” refers to two situations. First, amortization is used in the process of paying off debt through regular principal and interest payments over time. An amortization schedule is used to reduce the current balance on a loan—for example, a mortgage or a car loan—through installment payments.

Is there an Excel formula for amortization? ›

The beginning loan amount changes each month since a portion of the principal balance is being repaid as part of the monthly payment. Alternatively, we can use Excel's IPMT function, which has the following syntax: =IPMT(rate, per, nper, pv, [fv], [type]).

How do you calculate effective amortization? ›

Interest expense is calculated as the effective-interest rate times the bond's carrying value for each period. The amount of amortization is the difference between the cash paid for interest and the calculated amount of bond interest expense.

What is a normal amortization schedule? ›

An amortization schedule, often called an amortization table, spells out exactly what you'll be paying each month for your mortgage. The table will show your monthly payment, how much of it will go toward your loan's principal balance, and how much will be used on interest.

Does paying extra principal change amortization schedule? ›

Paying a little extra towards your mortgage can go a long way. Making your normal monthly payments will pay down, or amortize, your loan. However, if it fits within your budget, paying extra toward your principal can be a great way to lessen the time it takes to repay your loans and the amount of interest you'll pay.

Can you get a 30 year amortization? ›

If you're an aspiring homeowner looking for financial relief amid sky-high real estate prices, a 30-year amortization could be just what you need to qualify for a mortgage. However, this lengthy loan may also cost you more over the long run, even if it feels like you're saving money.

What is the most common amortization method? ›

Broadly speaking, loan amortization only considers the principal and doesn't include interest. These are the most common ways to calculate loan amortization: The French method. Also known as the progressive (quota) method, it consists of paying back the same amount each month until the debt is fully settled.

What is a good amortization period? ›

Amortizing over 30 years lowers your payment to something more manageable. Then you can pay the principal faster (within the limits of your mortgage contract) when you know you have the extra funds. You can always stop the prepayments in the event of a financial emergency.

Can I lower my amortization period? ›

The shorter the amortization period, the less interest you pay over the life of the mortgage. You can reduce your amortization period by increasing your regular payment amount. Your monthly payments are slightly higher, but you'll be mortgage-free sooner.

How do you calculate current year amortization? ›

How do you calculate amortization?
  1. The first step is to identify both the basic and residual value. The basic value is the amount that was paid to get the asset. ...
  2. Once you have the value, divide that by the years of the intangible asset's useful life. ...
  3. Now, each year, record the value of the asset on the income statement.
Oct 5, 2023

How do you calculate total interest over 30 years? ›

To calculate the total interest you will pay over the life of your loan multiply the principal amount by the interest rate and the lending term in years.

What is the formula for the monthly loan payment? ›

Monthly Payment = (P × r) ∕ n

Again, “P” represents your principal amount, and “r” is your APR. However, “n” in this equation is the number of payments you'll make over a year. Now for an example. Let's say you get an interest-only personal loan for $10,000 with an APR of 3.5% and a 60-month repayment term.

How do you calculate the amortization of a car loan? ›

Amortization Schedules

Using the interest rate per payment period (i.e. your yearly interest rate divided by 12 months), multiply this rate by the previous month's balance owed. The principal paid is calculated by subtracting the interest paid from the monthly payment amount.


Top Articles
Latest Posts
Article information

Author: Msgr. Refugio Daniel

Last Updated:

Views: 5693

Rating: 4.3 / 5 (74 voted)

Reviews: 89% of readers found this page helpful

Author information

Name: Msgr. Refugio Daniel

Birthday: 1999-09-15

Address: 8416 Beatty Center, Derekfort, VA 72092-0500

Phone: +6838967160603

Job: Mining Executive

Hobby: Woodworking, Knitting, Fishing, Coffee roasting, Kayaking, Horseback riding, Kite flying

Introduction: My name is Msgr. Refugio Daniel, I am a fine, precious, encouraging, calm, glamorous, vivacious, friendly person who loves writing and wants to share my knowledge and understanding with you.