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Online Calculators

Amortization Calculator Guide

Learn how amortization schedules work, calculate monthly payments, and understand how extra payments can save you money on your loan or mortgage.

What is an amortization schedule?

An amortization schedule is a table of periodic payments that shows how a loan is gradually paid off over time. Each payment is split between the principal (the amount borrowed) and interest (the cost of borrowing).

Over time, as more principal is repaid, the interest portion of each payment decreases. This is because interest is calculated on the remaining balance, which gets smaller with each payment.

How to calculate the monthly loan payment

The monthly payment formula is:

PMT=P×r(1+r)t(1+r)t−1\text{PMT} = P \times \frac{r(1+r)^t}{(1+r)^t - 1}

Where:

  • PP = principal loan amount
  • rr = monthly interest rate (annual rate ÷ 12)
  • tt = total number of months
  • PMT = monthly payment

Example

For a £100,000 loan at 6% for 20 years:

r=0.06÷12=0.005t=20×12=240PMT=100000×0.005×(1.005)240(1.005)240−1PMT=100000×0.005×3.31023.3102−1PMT=100000×0.016552.3102PMT=£716.43\begin{align*} r &= 0.06 \div 12 = 0.005 \\ t &= 20 \times 12 = 240 \\ \text{PMT} &= 100000 \times \frac{0.005 \times (1.005)^{240}}{(1.005)^{240} - 1} \\ \text{PMT} &= 100000 \times \frac{0.005 \times 3.3102}{3.3102 - 1} \\ \text{PMT} &= 100000 \times \frac{0.01655}{2.3102} \\ \text{PMT} &= \pounds 716.43 \end{align*}

What an amortization schedule shows

For each payment, the schedule displays:

Column Meaning
Payment # Sequential payment number
Payment Date When the payment is due
Payment Total monthly payment amount
Principal Portion going toward the loan balance
Interest Portion going toward interest charges
Extra Any additional payment toward principal
Balance Remaining loan balance after payment

Making extra payments

Extra payments go directly toward the principal balance, which means:

  1. Less interest accrues on the smaller remaining balance
  2. The loan is paid off sooner than the original term
  3. Total interest paid is significantly reduced

Types of extra payments

  • Recurring monthly/quarterly/yearly: A fixed extra amount added to regular payments
  • One-time lump sum: A single additional payment at a specific point

Example of extra payments

Using the £100,000 loan at 6% for 20 years (£716.43/month):

Scenario Total Interest Time to Pay Off Savings
No extra payments £71,943 240 months —
+£100/month extra £55,155 191 months £16,788 saved

By adding just £100 per month, you save £16,788 in interest and pay off the loan 49 months earlier.

Factors that affect your payment

Loan Amount

Higher principal means higher monthly payments and more total interest.

Interest Rate

Even a small difference in rate significantly impacts total interest. A 0.5% lower rate on a £200,000 loan can save thousands.

Loan Term

Longer terms mean lower monthly payments but significantly more total interest paid.

Extra Payments

Any amount paid above the minimum reduces principal faster, saving both time and money.

Tips for paying off your loan faster

  1. Round up your payment — paying £720 instead of £716.43 makes a difference over time
  2. Make bi-weekly payments — paying half the monthly amount every 2 weeks results in 13 full payments per year
  3. Apply windfalls — tax refunds, bonuses, and gifts can be applied to principal
  4. Check for prepayment penalties — some lenders charge fees for early payoff

References

  1. Money Supermarket. Should I overpay on my mortgage?
  2. Forbes. Pay Off Your Mortgage Early: Advantages and Disadvantages.