Loan payment and amortisation
Work out the level monthly payment on any fixed-rate amortising loan, then watch the interest-to-principal split shift year by year. Add an extra monthly payment to see how many years and how much interest disappear.
| Year | Interest paid | Principal paid | Ending balance |
|---|---|---|---|
| Year 1 | $16,168 | $2,794 | $247,206 |
| Year 2 | $15,981 | $2,981 | $244,224 |
| Year 3 | $15,781 | $3,181 | $241,043 |
| Year 4 | $15,568 | $3,394 | $237,649 |
| Year 5 | $15,341 | $3,621 | $234,027 |
| Year 6 | $15,098 | $3,864 | $230,163 |
| Year 7 | $14,839 | $4,123 | $226,041 |
| Year 8 | $14,563 | $4,399 | $221,642 |
| Year 9 | $14,269 | $4,694 | $216,948 |
| Year 10 | $13,954 | $5,008 | $211,940 |
| Year 11 | $13,619 | $5,343 | $206,597 |
| Year 12 | $13,261 | $5,701 | $200,896 |
Early years are interest-heavy by construction: the balance is largest, so the interest charge is largest too.
PMT = P·i / (1 − (1+i)⁻ⁿ) · annuity-immediate, i = r/12
Bₜ = P(1+i)ᵗ − PMT·[(1+i)ᵗ − 1]/i · outstanding principal after t payments
I_total = n·PMT − P · total cost of borrowing
Iₜ = Bₜ₋₁·i, Pₜ = PMT − Iₜ · interest first, principal is the remainder
A clear path from inputs to results.
A level-payment loan splits every payment into interest on the outstanding balance and principal repayment. Because the balance falls slowly at first, the early years are almost all interest — this engine makes that split explicit year by year, and shows what an extra payment does to both the term and the total cost.
How to use
- Enter the amount borrowed.
- Set the nominal annual interest rate.
- Choose the term in years.
- Optionally add an extra monthly payment applied entirely to principal.
- Read the monthly payment and the total interest over the life of the loan.
- Check the annual table: the year where principal overtakes interest is where the loan starts paying itself down.
The formula
Reference: Standard annuity-immediate amortisation formula; the APR is taken as a nominal annual rate compounded monthly (US consumer-loan payment convention). Reg Z Appendix J defines the disclosed actuarial APR, which includes finance charges.
Worked example
$250,000 at 6.5% over 30 years (default inputs)
- Loan amount $250,000.
- Annual rate 6.5%, monthly compounding.
- Term 30 years (360 payments).
- No extra payment.
- 1
Monthly rate: 6.5% / 12 = 0.541667%.
- 2
Payment: 250,000 × 0.00541667 / (1 − 1.00541667^−360) = $1,580.17.
- 3
First payment split: interest 250,000 × 0.00541667 = $1,354.17, principal $226.00.
- 4
Total paid over the term: 360 × 1,580.17 = $568,861.
- 5
Total interest: 568,861 − 250,000 = $318,861.
Monthly payment $1,580.17 · total interest $318,861 · total repaid $568,861 (2.28× the amount borrowed).
Interpreting the result
The headline is not the payment but the ratio: this loan costs 2.28 times the amount borrowed. That is the price of a 30-year term at 6.5%. The first payment is 86% interest; by the midpoint it is roughly half. Any extra payment goes straight to principal and removes the interest that principal would have accrued for the remaining term, which is why small extras have a disproportionate effect late in the schedule.
Assumptions & limitations
- The rate is fixed for the entire term. Adjustable-rate loans need a rate path, not a single number.
- Payments are made at month end and are equal in amount.
- No fees are financed into the balance; if they are, add them to the principal.
- No escrow, insurance or property tax is included — those are additional to principal and interest.
- Extra payments are applied to principal immediately, with no prepayment penalty.
Frequently asked questions
How much does an extra payment save?
It depends on when it starts. An extra payment early in the term removes interest that would have compounded for decades, so it saves far more than the same payment made in year 25. Use the extra-payment input to see both the interest saved and the years removed.
What is the difference between APR and the interest rate?
The interest rate determines the payment arithmetic. APR folds in fees and is the number to use when comparing loan offers. A loan with a lower rate but high fees can have a higher APR.
Does biweekly payment help?
It helps because it results in 13 full payments a year instead of 12. The mechanism is the extra payment, not the frequency itself. A single extra monthly payment a year achieves a similar effect.
Why is so little principal repaid at first?
Interest is charged on the outstanding balance, which is largest at the start. With a level payment, whatever is left after interest is the principal component — and at the start that is very little. This is not a trick; it is the arithmetic of amortisation.
Should I choose a shorter term?
A shorter term raises the payment and cuts total interest sharply. Whether that is right depends on cash-flow tolerance, not on arithmetic alone — the cheapest loan is not always the affordable one.
How do I handle a variable rate?
Model the current rate to see today’s payment, then re-run at a higher rate to stress-test affordability. The schedule will change whenever the rate resets; a single fixed-rate table cannot represent that.
Methodology last reviewed 2026-10-18. Results are informational and not financial or engineering advice — see our disclaimer.