Question 1

What is loan amortization?

Accepted Answer

Loan amortization is the process of spreading a loan into a series of fixed payments over time. Each payment covers both principal and interest. Early payments are interest-heavy, while later payments reduce more principal. An amortization schedule shows this breakdown for every payment.

Question 2

How do extra payments affect amortization?

Accepted Answer

Extra payments go directly toward reducing the principal balance. This lowers total interest paid and shortens the loan term. Even small extra payments of $100/month can save thousands in interest and cut years off a mortgage. The amortization schedule recalculates automatically with each extra payment.

Question 3

What is the amortization formula?

Accepted Answer

The monthly payment formula is: M = P × [r(1+r)^n] / [(1+r)^n - 1], where P is principal, r is monthly interest rate (annual rate / 12), and n is total number of payments. This is the standard fixed-rate amortization formula used by most lenders.

Question 4

What is negative amortization?

Accepted Answer

Negative amortization occurs when monthly payments are less than the interest owed, causing the loan balance to increase instead of decrease. This happens with certain adjustable-rate mortgages and payment-option ARMs. It's risky because you end up owing more than you originally borrowed.

Question 5

How much interest will I pay on a 30-year mortgage?

Accepted Answer

On a $300,000 mortgage at 6.5% for 30 years, you'll pay approximately $380,000 in interest — more than the loan itself. The total cost is about $680,000. Adding just $200/month in extra payments can save over $100,000 in interest and pay off the loan 6 years early.

Question 6

Can I create my own amortization schedule?

Accepted Answer

Yes. Use the amortization calculator above — enter your loan amount, interest rate, and term to instantly generate a complete schedule. You can also add extra payments to see how they impact your payoff timeline and total interest savings.

Question 7

What's the difference between amortization and depreciation?

Accepted Answer

Amortization spreads the cost of an intangible asset or loan over time. Depreciation does the same for tangible assets like equipment or vehicles. In lending, amortization refers to the gradual repayment schedule of a loan through fixed periodic payments.

Question 8

Is an amortization schedule the same for all loan types?

Accepted Answer

No. Fixed-rate loans have a predictable schedule where payments stay constant. Adjustable-rate mortgages (ARMs) recalculate when rates change. Interest-only loans defer principal repayment, and balloon loans require a large lump sum at the end. This calculator works for standard fixed-rate amortizing loans.

Amortization Calculator

Loan Details

Summary

Amortization Schedule

Amortization Calculator

Loan Details

Summary

Amortization Schedule

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