Mortgage Amortization Calculator

The schedule above lists every payment over the life of the loan. Change the start date to line the dates up with your first payment, and switch off taxes and costs to focus on the loan itself. The yearly view is handy for tax planning, since it shows the mortgage interest paid in each calendar span, while the monthly view shows the exact balance after any given payment.

What Is Amortization?

Amortization means paying off a debt through a series of regular payments that each cover the interest due and part of the principal, so the balance reaches exactly zero at the end of the term. Most mortgages, car loans and personal loans are amortizing loans. The word is also used in accounting for spreading the cost of an intangible asset, such as a patent, over its useful life, but for borrowers it describes how the loan is repaid.

Every payment on an amortizing loan is the same size, but its makeup changes. Interest is calculated on the balance still owed, so early on, when the balance is highest, interest takes the largest share. On the default $400,000 loan at 7.108%, the first payment of $2,690.29 includes about $2,369 of interest and only $321 of principal. By the final years the proportions have reversed, and the last payment is almost entirely principal.

The table below shows the same process on a smaller scale: a $15,000 loan at 6% for three years, with a payment of $456.33 a month. Total interest over the 36 payments comes to $1,427.85.

Comparing the first and last rows shows the pattern in miniature: interest falls from $75.00 to $2.27 while the principal portion grows from $381.33 to $454.06, even though the payment never changes.

Interestₖ = Bₖ₋₁ × r · Principalₖ = M − Interestₖ · Bₖ = Bₖ₋₁ − Principalₖ

Bₖ

loan balance after payment k (B₀ is the amount borrowed)

r

monthly interest rate (annual rate ÷ 12)

M

fixed monthly payment, P × r(1 + r)ⁿ ÷ [(1 + r)ⁿ − 1]

Repeating these three steps for every month produces the amortization schedule. Because interest is charged on a shrinking balance, each payment sends a little more to principal than the one before.

Amortizing a Mortgage Faster and Saving Money

Because interest is charged only on the outstanding balance, anything that lowers the balance sooner reduces the total interest you pay. There are several ways to do it.

Extra payments. Adding even a modest amount to each monthly payment, marked for principal, shortens the loan and cuts interest substantially, especially in the early years. On the default $400,000 loan, an extra $250 a month pays the mortgage off nearly seven years early and saves more than $150,000 in interest. Annual lump sums from a bonus or tax refund work the same way, and one-time payments are most effective when made early in the term.

Biweekly payments. Paying half the monthly amount every two weeks produces 26 half-payments, or 13 full payments, a year. The extra payment goes entirely to principal and typically shortens a 30-year loan by four to six years. Make sure your servicer applies each half-payment when it arrives rather than holding it until the full amount is received, and avoid third-party programs that charge fees for the service.

Refinancing to a shorter term. A 15-year mortgage usually has a lower rate than a 30-year loan, and with half the number of payments, total interest is often less than half as much. The trade-off is a much higher required payment and closing costs on the new loan. Refinancing to a lower rate at the same term can also lower total interest, if you stay long enough to recover the costs.

Recasting. Some lenders will recalculate, or recast, the payment after a large lump-sum principal payment, keeping the same rate and end date but lowering the monthly payment. It does not shorten the loan, but it reduces interest and frees up cash flow for a small fee, usually a few hundred dollars.

Making a larger down payment. Borrowing less in the first place is the simplest way to reduce interest. A larger down payment can also eliminate private mortgage insurance and earn a better rate.

Before paying ahead, confirm that your loan has no prepayment penalty, keep an emergency fund in place and pay off higher-rate debts first. Check each statement to see that extra money was applied to principal rather than held as an advance on future payments.

Drawbacks of Amortizing a Mortgage Faster

Paying a mortgage down early has costs of its own. Money put into the house is illiquid: getting it back requires selling, refinancing or taking out a home equity loan. The same dollars might earn more in a retirement account, especially one with an employer match, or might be better used to pay off credit cards and other higher-rate debt. If you itemize deductions, a smaller balance also means less deductible mortgage interest. Weigh these trade-offs before committing extra cash to the loan.

Frequently asked questions

Sources

• Consumer Financial Protection Bureau – Owning a Home
• IRS Publication 936 – Home Mortgage Interest Deduction