Loan amortization calculator
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What is loan amortization?
Loan amortization is the process of making payments that gradually reduce the amount you owe on a loan. Each time you make a monthly payment on an amortizing loan, part of your payment is used to pay off some of the principal, or the amount you borrowed. This lowers the amount you still have to pay off. Some of your payment covers the interest you’re charged on the loan. Paying interest doesn’t cause the amount you owe to decrease.
Loan amortization matters because with an amortizing loan that has a fixed rate, the share of your payments that goes toward the principal changes over the course of the loan. When you start paying the loan back, a large part of each payment is used to cover interest, and your remaining balance goes down slowly. As your loan approaches maturity, a larger share of each payment goes to paying off the principal.
For example, you may want to keep amortization in mind when deciding whether to refinance a mortgage loan. If you’re near the end of your loan term, your monthly mortgage payments build equity in your home quickly. Refinancing resets your mortgage amortization so that a large part of your payments once again goes toward interest, and the rate at which you build equity could slow.
Amortization calculators are especially helpful for understanding mortgages because you typically pay them off over the course of a 15- to 30-year loan term, and the math that determines how your payments are allocated to principal and interest over that time period is complex. But you can also use an amortization calculator to estimate payments for other types of loans, such as auto loans and student loans.
How to use Credit Karma’s loan amortization calculator
When you’re deciding how much to borrow or comparing loans, it’s helpful to get an estimate of your monthly payment and the total amount you’ll pay in principal versus interest. You can use our loan amortization calculator to explore how different loan terms affect your payments and the amount you’ll owe in interest. You can also see an amortization schedule, which shows how the share of your monthly payment going toward interest changes over time.
Keep in mind that this calculator provides an estimate only, based on your inputs. It doesn’t consider other variables, such as mortgage closing costs or loan fees, that could add to your loan amount and increase your monthly payment. It also doesn’t consider the variable rates that come with adjustable-rate mortgages.
To get started, you’ll need to enter the following information about your loan:
Input the amount of money you plan to borrow, minus any down payment you plan to make. You may want to try out a few different numbers to see the size of the monthly payments for each one.
Enter the length of time you want to spend paying back the loan. This choice affects the size of your payment and the total amount of interest you’ll pay over the life of your loan. It’s also likely to affect the interest rate lenders offer you. Other things being equal, lenders usually charge higher rates on loans with longer terms.
Estimated interest rate
Enter the interest rate, or the price the lender charges for borrowing money. For example, to see the results for a 4% interest rate, enter 4. You can use a tool like the Consumer Financial Protection Bureau’s interest rates explorer to see typical rates on mortgages, based on factors such as home location and your credit scores.
The interest rate is different from the annual percentage rate, or APR, which includes the amount you pay to borrow as well as any fees. Entering an estimated APR in the calculator instead of an interest rate will help provide a more accurate estimate of your monthly payment.
Keep in mind that this calculator doesn’t consider the variable rates that come with adjustable-rate mortgages.
How to read an amortization schedule
An amortization schedule for a loan is a list of estimated monthly payments. At the top, you’ll see the total of all payments. For each payment, you’ll see the date and the total amount of the payment. Next, the schedule shows how much of the payment is applied to interest and how much is applied to the principal over the duration of the loan. In the last column, the schedule gives the estimated balance that remains after the payment is made.
The schedule starts with the first payment. Looking down through the schedule, you’ll see payments that are further out in the future. As you read through the entries, you’ll notice that the amount going to interest decreases and the amount going toward the principal increases. The remaining balance also decreases.
After the payment in the final row of the schedule, the loan balance is $0. At this point, the loan is paid off.
Other loan costs to consider
In addition to paying principal and interest on your loan, you may have to pay other costs or fees. For example, a mortgage payment might include costs such as property taxes, mortgage insurance, homeowners insurance, and homeowners association fees.
The amortization calculator doesn’t consider these added costs, so its estimate of your payments may be lower than the amount you’ll actually owe each month. To get a clearer picture of your loan payments, you’ll need to take those costs into account.
Should I pay off my loan early?
Whether you should pay off your loan early depends on your individual circumstances. Paying off your loan early can save you a lot of money in interest. In general, the longer your loan term, the more in interest you’ll pay. Suppose you get a $200,000 home loan with an interest rate of 4%. If you pay this off over 30 years, your payments, including interest, add up to $343,739. But if you got a 20-year mortgage, you’d pay $290,871 over the life of the loan. That’s a difference of $52,868.
To pay off your loan early, consider making
additional payments, such as biweekly payments instead of monthly, or payments that are larger than your required monthly payment. Ask your lender to apply the additional amount to your principal.
But before you do this, consider whether making extra principal payments fits within your budget — or if it’ll stretch you thin. You might also want to consider using any extra money to build up an emergency fund or pay down higher interest rate debt first.