Loan amortization calculator

Amortization is repaying a loan through regular payments. Each payment covers the interest for the month and repays part of the debt, called the principal. The payment stays the same, but as the balance falls, less of it goes to interest and more to the principal.

Monthly payment = L × i / (1 − (1 + i)^−n)

Interest for the month = Balance × i

Principal for the month = Payment − Interest

L is the loan amount, i the monthly rate (the annual rate divided by 12) and n the number of months.

A loan of 200.000 at 5 % over 25 years has a monthly payment of 1.169,18. Over the full term you pay 150.754 of interest. Early on, interest takes most of the payment: of the 14.030 paid in the first year, 9.906 is interest and only 4.124 repays the debt.

For the monthly payment, and for the split of the first payment:

=PMT(5%/12,300,-200000)

=IPMT(5%/12,1,300,-200000)

=PPMT(5%/12,1,300,-200000)

Extra money goes straight to the principal, so every later month charges less interest. On the loan above, paying 200 more a month clears it in 18 years and 10 months instead of 25, and saves 41.843 of interest.

An amortizing loan repays the debt little by little. A bullet loan pays only interest and returns the whole amount at the end. Monthly payments are lower with a bullet, but the debt does not shrink, which is why buyout financings often mix the two.