What is loan amortization?
Amortization is the process of paying a balance down through regular payments over time. The CFPB explains that a fixed payment is divided between interest and principal; early payments generally contain more interest because the balance is higher.
Use the Loan Calculator when origination fees and effective cost are important, or the Mortgage Calculator for taxes, insurance, mortgage insurance and HOA costs.
Fixed-payment formula
P is principal, r is the monthly rate and n is the number of payments. At 0%, principal is divided evenly by the term.
Custom payments and extra principal
Custom mode uses the entered recurring amount while preserving the term-calculated payment as a baseline. Explicit extras can be monthly, annual or applied once at a chosen payment number.
A plan that does not reduce principal is rejected instead of displaying a misleading payoff.
Important limitations
- The rate is fixed and interest is calculated monthly.
- Fees, late charges and daily simple-interest conventions are excluded.
- Extra-payment allocation and prepayment terms can vary.
- The final payment is reduced to prevent overpayment.