Amortization Calculator
Calculate the required fixed monthly payment and generate a complete loan repayment schedule, showing how principal and interest change over time.
What is Amortization and How Does it Work?
**Amortization** is the process of paying off a debt over time in regular installments. For most loans (like mortgages or auto loans), the payment amount remains constant, but the portion of the payment that goes toward **interest** versus **principal** changes over the life of the loan.
The Amortization Payment Formula:
The periodic payment ($M$) is calculated using the following standard loan formula: $$M = P \left[ \frac{i(1 + i)^n}{(1 + i)^n - 1} \right]$$ Where:
- $P$ is the **Principal** (loan amount)
- $i$ is the **Periodic Interest Rate** ($APR / n_{\text{periods}}$)
- $n$ is the **Total Number of Payments** ($term \times n_{\text{payments per year}}$)
Key Schedule Insights:
The amortization schedule clearly shows that in the **early years** of the loan, the majority of your fixed payment covers the **interest** charge. As the loan balance decreases, a progressively larger portion of your fixed payment goes toward reducing the **principal** balance.