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Mortgage Amortization Calculator

Amortization Formulas:

\[ I_k = B_{k-1} \times r \] \[ P_k = M - I_k \] \[ B_k = B_{k-1} - P_k \]

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1. What is a Mortgage Amortization Calculator?

Definition: This calculator shows how each mortgage payment is split between principal and interest over the life of the loan.

Purpose: It helps borrowers understand how much of their payment goes toward paying down the loan versus paying interest.

2. How Does the Calculator Work?

The calculator uses these formulas:

\[ I_k = B_{k-1} \times r \] \[ P_k = M - I_k \] \[ B_k = B_{k-1} - P_k \]

Where:

Explanation: Each payment first covers the interest due on the outstanding balance, with the remainder going toward principal.

3. Importance of Amortization

Details: Understanding amortization helps borrowers see the true cost of their loan and how extra payments can save interest.

4. Using the Calculator

Tips: Enter the loan amount, annual interest rate, and loan term in years. The calculator will show your monthly payment and breakdown.

5. Frequently Asked Questions (FAQ)

Q1: Why does most of my early payment go toward interest?
A: This is how amortization works - interest is calculated on the outstanding balance, which is highest at the beginning.

Q2: How can I pay less interest overall?
A: Make extra principal payments or choose a shorter loan term to reduce total interest paid.

Q3: What's the difference between interest rate and APR?
A: APR includes both interest rate and other loan costs, giving a more complete picture of borrowing costs.

Q4: How does refinancing affect amortization?
A: Refinancing resets the amortization schedule, typically extending the time before you build significant equity.

Q5: Can I see a full amortization schedule?
A: Yes, advanced versions of this calculator can show a month-by-month breakdown of your payments.

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