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.
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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.
Worked example: Amortization
Enter the following values in the Amortization Calculator and calculate to reproduce this result. Dates below use year-month-day order. This is an illustrative scenario, not a personalized recommendation or a current quote.
- Loan principal: 25000
- Fixed annual rate: 7.5
- Loan term — years: 5
- Additional months: 0
- Payment method: Calculate payment from term
- First payment date: 2026-10-15
- Extra every month: 0
- Annual lump sum: 0
- One-time extra payment: 0
- Apply at payment number: 0
Example result: $500.95regular monthly payment plan. The entered plan pays off the balance in 60 months, around Sep 15, 2031.
How to interpret this example
The regular payment shown is principal and interest under the entered repayment plan. Property taxes, insurance and lender fees are separate unless explicitly entered. Inspect total interest and payoff timing before treating a lower monthly payment as a cheaper loan.