Amortization Calculator
What is amortization?
Amortization is important to know about. It is usually used in the phrase ‘an amortization schedule’. This is a schedule used by banks or lenders to illustrate or represent a schedule of repayments on a mortgage or loan over a defined period of time.
Amortization sounds intimidating, but it is simply the action of paying down debt or paying off a loan with regular payments set out over a defined period of time that reduce the debt progressively.
Over time, the Principal (the initial loan amount, for example) is repaid and less interest is therefore due on the remaining balance. At the start of a loan, a bigger percentage of a regular payment is taken up paying interest. As the loan or mortgage is paid off, more of the repayments go to paying off the Principal – the main loan or mortgage amount – and less to the interest, as the interest is reducing all the time the debt is lowering.
Over time, the split between Principal and Interest therefore changes, as interest reduces and the principal amount is paid off.
(NB: if reading this in the UK, amortization is spelled amortisation, but it is the same thing.)
The amortization calculator allows you to see the progression of your debt reduction over time. Put in various amounts and it will calculate the interest you will pay monthly, annually and overall throughout any loan or borrowing period. You can also add in additional payments and their frequency, so that you can see the difference it makes to your overall interest when you overpay.
| Payment date | Payment | Principal | Interest | Balance |
|---|---|---|---|---|
| Initial Month | – | – | – | $3,000.00 |
| Month 2 | $279.59 | $267.09 | $12.50 | $2,732.91 |
| M3 | $279.59 | $268.21 | $11.39 | $2,464.70 |
| M4 | $279.59 | $269.32 | $10.27 | $2,195.38 |
| M5 | $279.59 | $270.45 | $9.15 | $1,924.93 |
| M6 | $279.59 | $271.57 | $8.02 | $1,653.36 |
| M7 | $279.59 | $272.70 | $6.89 | $1,380.66 |
| M8 | $279.59 | $273.84 | $5.75 | $1,106.82 |
| M9 | $279.59 | $274.98 | $4.61 | $831.84 |
| M10 | $279.59 | $276.13 | $3.47 | $555.71 |
| M11 | $279.59 | $277.28 | $2.32 | $278.43 |
| M12 | $279.59 | $278.43 | $1.16 | $0.00 |
The calculator also allows you to see monthly and yearly breakdown schedules. Below is an example of an annual overview breakdown of how an amortization schedule looks for a loan of $3000 taken out at 4% over 2 years paying an additional $35 per month. If you use the amortization calculator you will also see how a monthly amortization schedule looks with or without any additional monthly payments.
Experiment with different amounts and different interest rates and repayment periods to see what you can afford. This is a really important thing to do to maximize your finances. Add in even small additional monthly overpayments and you can make a big difference to the interest you pay and the overall cost of your loan. This knowledge can be helpful in conversations with banks and lenders so that you and not they gain maximum advantage. Use the amortization calculator to maximize your interests, not theirs!
| Year | Payments | Principal | Interest | Balance |
|---|---|---|---|---|
| February 2023 | $3000 | |||
| 2023 | $1652.70 | $1576.25 | $76.50 | $1423.75 |
| 2024 | $1447.01 | $1423.75 | $23.30 | $0.00 |
| Final Total | $3099.80 | $3000 | $99.80 | $0.00 |
