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This calculator uses the standard amortization formula to determine your loan payments and how they're allocated between principal and interest over the life of the loan.
The formula used to calculate your periodic payment is:
Where:
In the early years of your loan, a larger portion of each payment goes toward interest rather than principal. As you continue to make payments, this ratio gradually shifts until the final payments are almost entirely principal.
The amortization schedule shows this progression period by period, helping you understand how your equity increases over time while your interest costs decrease.
Extra payments reduce your principal balance faster, which decreases the total interest paid and shortens the loan term. Even small extra payments can save you thousands in interest over the life of a loan.
Extra payments reduce your principal balance faster, which decreases the total interest paid and shortens the loan term. Even small extra payments can save you thousands in interest over the life of a loan. For example, an extra $50 per month on a $250,000 mortgage could save over $20,000 in interest and pay off the loan several years early. The impact is most significant when applied early in the loan term when interest costs are highest.
Bi-weekly payments (26 per year) are equivalent to 13 monthly payments annually, which can significantly reduce your loan term and interest costs. Monthly payments (12 per year) are the standard schedule. Bi-weekly payments can help you pay off your loan faster without feeling the pinch of a larger monthly payment. For example, on a 30-year mortgage, switching to bi-weekly payments could shorten the loan term by 4-5 years and save tens of thousands in interest.
A longer loan term results in lower monthly payments but higher total interest costs over the life of the loan. A shorter term means higher monthly payments but less interest paid overall. Choosing the right term depends on your budget and financial goals. This calculator helps you visualize these tradeoffs. For example, a $300,000 loan at 4% interest would have a monthly payment of $1,432 for 30 years (total interest: $215,609) versus $2,110 for 15 years (total interest: $79,767).
Fixed-rate loans have consistent interest rates and payments throughout the loan term, providing predictability and protection against rising interest rates. Variable-rate loans typically start with lower rates but can fluctuate with market conditions, potentially leading to higher payments in the future. Fixed rates are generally better for long-term stability, while variable rates might be advantageous if you plan to sell or refinance before rates increase significantly.
Loan amortization is the process of gradually paying off a loan through regular payments that cover both principal and interest. In the early years, most of each payment goes toward interest, with a smaller portion reducing the principal. Over time, this ratio shifts so that more of each payment goes toward principal. An amortization schedule shows this breakdown for each payment throughout the life of the loan, helping you understand how your debt decreases over time.