Amortization Calculator Guide: How Loan Payments Break Down
How a fixed loan payment splits between interest and principal over time, the formula behind it, and why an extra payment saves more early in a loan than late.
Amortization is just the process of paying off a loan through equal payments over time, where each one covers that period's interest first and puts the rest toward the balance.
The formula
M = P × [r(1+r)ⁿ] ÷ [(1+r)ⁿ − 1], where P is the loan amount, r is the monthly interest rate (annual rate ÷ 12), and n is the total number of payments. This is the same formula behind every fixed-rate mortgage, auto loan, and personal loan payment.
Why the split changes every month
Interest is charged on whatever balance remains, so a fixed payment covers mostly interest when the balance is largest (early in the loan) and mostly principal once the balance has shrunk (late in the loan). The payment amount never changes — only what it buys does.
Worked example
A $350,000 loan at 6.5% over 30 years: monthly rate r = 0.065 ÷ 12 = 0.005417, n = 360. The payment comes out to $2,212.24/month. In month 1, interest alone is $1,895.83, leaving just $316.40 for principal — by year 25, the split has flipped, with most of that same payment going to principal.
The Amortization Calculator runs this month by month and shows the full year-by-year schedule, not just the payment.